Your End of Year Checklist for Tax-Smart Charitable Giving

By: Arvind Ven

T’is the season for charitable giving and one of the best ways to feel good while making a difference in the world is by donating to charities. However, how you donate can significantly affect your tax bill, especially given the recent tax reform passed late last year.

Here are some strategies to consider for tax-smart charitable giving (please consult your tax professional to see how these strategies apply to you):

Donate Appreciated Assets

Given the height of the market, one of today’s most effective donations are appreciated assets, such as stocks or property. The receiving charity can sell the asset and get their full dollar value and you get the tax credit for that same amount. This gives the charity much more than if you were to first sell your stock, pay capital gains tax, and then donate what’s left over.

This strategy may have a secondary benefit - It can also save the frustration of spending time researching the cost basis of a stock you may have received as a gift or through company mergers and spinoffs, when the stock lineage is difficult to trace. By donating these shares, tax credit can be claimed for the full current value, and without worrying about figuring out the cost basis.

Use your Qualified Charitable Distribution (QCD)

If you are 70 ½ or older, you can distribute up to $100,000 directly to charity from your IRA. This could satisfy all (or at least a good part) of your Required Minimum Distribution (RMD) and the amount does not need to be reported as income.

Open a Donor Advised Fund (DAF) and “Bundle” Donations

Contributions to DAFs give you an immediate tax deduction while allowing you to grant over time to nonprofits throughout the US. You can open a DAF with cash, securities, property, etc. DAFs are simpler and less expensive to set up and manage compared to a private foundation and a good way to teach children about philanthropy. They are also an ideal estate planning vehicle for establishing a permanent philanthropic legacy for you and your family.

In addition, with last year’s tax reform many donors are now using DAFs to get additional tax deductions by “bunching” charitable gifts. This addresses the increased standard deduction, which has risen to $12,000 for individuals and $24,000 for married couples filing jointly. To use this approach, multiple years of charitable deductions are donated at once to a Donor Advised Fund. For example, if someone normally donates $8,000 a year to charities, they could donate $24,000 this year to their DAF, obtain this year’s tax deduction for the full amount, and then donate $8,000 this year and each of the subsequent two years.

Vehicles such as Charitable Remainder Trusts and Charitable Gift Annuities allow you to get a tax deduction now for a charitable gift while providing income to you during your lifetime. They can be very useful as estate planning tools.

The rate of Americans' charitable giving has remained constant, at roughly 2 percent of GDP, for several decades. But donations to Donor Advised Funds now account for about 5 percent of overall giving. Community foundations run a number of these funds, as well as the larger financial services companies.

Finally, the above should not be considered tax advice. Please check with your tax preparer or certified tax professional for tax advice related to your personal situation. Need help with your financial plan or charitable giving? Contact us today.

Arvind Ven is an independent financial advisor and Founder/CEO of the Capital V Group, a Registered Investment Advisory firm. He has an MBA from the MIT Sloan School and a Master’s Degree in Computer Engineering.

Arvind Ven is a Registered Representative with, and securities offered through LPL Financial. Member FINRA & SIPC.