2023’s Year-End Charitable Giving Landscape: Almost Unchanged

By: Bill Zook

Many professional advisors doubt there will be much – if any – change in federal tax law affecting charitable giving between now and the end of 2025. At the state level, however, 2023 judicial action has made clear that Washington’s capital gain tax, which became effective in 2022, is here to stay.

As a result, advisors have begun to sharpen their focus on the limited charitable deduction available under the no-longer-so-new law. While the Washington Department of Revenue has not yet finalized its rules providing further guidance regarding the requirements for this deduction, Seattle Foundation anticipates that its status as a 501(c)(3) public charity headquartered in Seattle makes it a “qualified organization” eligible to receive tax-deductible charitable contributions under the Washington capital gains tax. 

Separately, there is merit in considering what can be accomplished under aspects of federal and state law that haven’t changed. As the end of the year approaches, here are a few approaches that continue to be attractive.

Drawing on Long-term Appreciated Publicly Traded Securities to Make Gifts

When transferred to a charity directly, in lieu of being sold and the resulting cash being donated, these assets are deductible for federal income tax purposes at their full value and completely avoid federal or state capital gains tax. A gift of securities can be made to Seattle Foundation for any purpose.

By contrast, many smaller organizations doing vital, impactful work don’t accept such gifts. Thus, via a donor advised fund or any of several funds from which grants are made pursuant to its Blueprint for Impact, Seattle Foundation can open a channel through which support for a variety of local charities would not otherwise pass.

Making Wise Use of Retirement Assets

A donor over age 70-1/2 with a traditional IRA can transfer up to $100,000 a year directly from the IRA to an organization such as Seattle Foundation without any of the money being added to taxable income. The gift is not deductible but can be used to satisfy minimum distribution requirements applicable to those age 73 (versus 72 last year) and older, to the extent the requirements haven’t already been met for the year. Note: Such “charitable rollover” gifts can be added to any type of Seattle Foundation fund except a donor advised fund.

An alternative that may be appealing to anyone over age 59-1/2 who itemizes their deductions is to take a distribution from a non-Roth IRA – or a qualified retirement plan – and then transfer long-term appreciated securities of equal value to Seattle Foundation. As noted above, the gift can be made for any purpose, including adding to a donor advised fund. The resulting charitable deduction should offset the taxable income received from the IRA or qualified plan. The donor can then use the cash in any of a variety of ways. Options include purchasing new units of the same securities (which will now have a higher cost basis) or purchasing entirely different securities to diversify a portfolio.

Making Gifts with Good Old Cash

In recent years, Seattle Foundation has worked with many donors holding substantial amounts of cash, typically as the result of selling a business. Even though it’s usually wise for a donor to explore contributing an interest in the business to Seattle Foundation in advance of the sale, contributing cash can also make sense.

As in years past, alternative adjusted gross income (AGI) limits may apply when a taxpayer’s deductions derive from charitable gifts of both cash and other assets. Likewise, complications can arise when charitable deductions are carried forward from prior years. Accordingly, clients will be relying on their advisors to help them weigh these and other factors.

Tapping Seattle Foundation for Information and Ideas

Whenever you think Seattle Foundation might be of assistance, please contact Cindy Sharek, Director of Gift Planning.