Those who work with donors must be ever mindful that their hearts don’t take a day off. Still, the head has a critical role to play in bringing tax and financial considerations to bear so that charitable benefit can be maximized.
By Bill Zook, Senior Advisor, Gift Planning
To paraphrase the Rev. Dr. Martin Luther King, the time is always right to make a charitable gift. Every day of the year presents needs, as well as opportunities to have significant philanthropic impact in meeting them. Those who work with donors must be ever mindful that their hearts don’t take a day off.
Still, the head has a critical role to play in bringing tax and financial considerations to bear so that charitable benefit can be maximized. This reality comes into focus more clearly especially as December 31 approaches.
Happily, it’s quite unlikely 2022 will be a year with last-minute tax law changes to be taken into account. With this understanding, certain tax incentives continue to be attractive to donors in certain situations.
Direct transfers of long-term appreciated assets remain the workhorse of tax-efficient charitable giving. This is true not only for publicly traded securities, which people think of most often, but also for many less liquid assets. In selected instances, Seattle Foundation can receive such assets. In others, the Foundation may be able to suggest realistic alternative ways the assets can be used to support our community.
Part of the appeal of these gifts is a deduction for full value. This applies, however, only to donors who itemize. Yet any donor can avoid being taxed on even a penny of the capital gain, so long as the assets are indeed transferred, rather than sold.
Likewise, any donor who has determined the time has come to sell an asset that has decreased in value over the years is well-advised to sell it and donate some or all of the resulting cash. Doing so captures a capital loss that can offset gains on the sale of other assets (along with possibly a measure of ordinary income). Moreover, donors who itemize can claim a deduction up to the more favorable adjusted gross income ceiling for gifts of cash.
Donors age 72 or older subject to required minimum distributions (RMDs) from an IRA can avoid the associated taxable income by having up to $100,000 of an RMD transferred directly to most charities in lieu of receiving the money themselves. Such qualified charitable distributions (QCDs) are actually an option for anyone at least age 71-1/2, even if they’re not yet subject to RMDs.
Although donor advised funds are ineligible for the QCD, Seattle Foundation can accept QCDs to any other fund or initiative including the Fund for Inclusive Recovery.
In addition, a donor who is at least age 59-1/2 can withdraw any amount from an IRA (or a qualified retirement plan, such as a 401(k)) to facilitate a charitable gift. Even though the money will be subject to tax, the income can be offset—provided the donor itemizes—partially or entirely when some or all of the cash is used to make a charitable gift.
Better still is for the donor to transfer long-term appreciated securities to a charitable organization. As noted above, none of the capital gain will be taxed, and a deduction for full value is available if the donor itemizes. The cash from the IRA or qualified plan can then be used for other purposes—including reestablishing the same position in the securities contributed, which will now have a higher basis.
To learn more, please contact Bill Zook at 206.388.1722 or Ingrid Chapman at 206.388.1652.