“We make a living by what we get, but we make a life by what we give.” -Winston Churchill

As we approach this time of Thanksgiving, many of us have a desire to open our hearts and our checkbooks.  We want to help those we love and the charities that inspire us to build a build a better world.  It is an understatement to say that the needs are great and evident to all.

While our desires are gratuitous, it is important to remember that generosity can benefit both the recipient and the giver.  Here are a few ideas that may make a kind gesture even better:

Consider giving appreciated assets as opposed to cash —Although your basis will carry over to the recipient, he or she may be in a lower tax bracket and the gain may either be taxed at a lower rate or not at all. If you gift an appreciated asset to a charity, the donee receives the full market value of the asset tax free.  This approach often allows the charity to receive a much larger gift, than you would have otherwise given.                                                                                                                                                                         

Consider a Donor Advised Fund—This charitable initiative allows you to make a potentially large donation in one year, take a significant tax deduction, and gift the funds to your favorite charities over time. Concentrating your donations in one Tax Year may allow you to qualify for a more substantial deduction, as opposed to giving smaller amounts each year.  Donor Advised Funds are also a great way to maintain a spirit of charity, long after the holidays have passed.

Consider the Annual Exclusion—You can gift $15,000 this year to any person you would like, without any gift tax consequences. A married couple can give $30,000 to one individual, by electing to split their gift.  Annual exclusion gifts may be a great way to help a child, grandchild, niece or nephew.  Although you may be planning to remember them in your estate plan, they may need the help now more than later.  Your gift may also lower your future estate taxes, by removing the asset from your estate.

Consider Donating Highly-Appreciated, Illiquid Assets—This approach is a way to think ‘outside the box’, by providing a charity with a potentially large donation, part with an asset you no longer need or want, all while cultivating a sizable tax deduction. Examples of illiquid assets you may want to consider include stocks of non-public, closely held companies, land, artwork, coin collections, vehicles and jewelry.  Donating these items also eliminates them from your estate, simplifying administration for your trustee and loved ones.

Consider timing charitable gifts to coincide with taxable events—In times of particularly good fortune, such as the sale of a business, real property, a patent, or other creative or intellectual property, a charitable donation may go a long way towards onsetting the gain or income you may need to recognize. You can also lessen the tax impact of a Roth Conversion, through your charitable generosity.  The key take-away–you can do good, while doing good for yourself and your family, by mitigating a large tax obligation.

Consider drafting a donation from your IRA—This strategy is known as a Qualified Charitable Distribution (QCD), however, it is only available to those 72 and older. If you meet that one qualification, you can donate up to $100,000 each year absolutely tax-free.  It is important to note that because these funds have never been taxed, you will not receive an actual deduction.  QCDs can allow you to satisfy your Required Minimum Distribution in future years, without any tax consequences.  (The CARES Act eliminated all Required Minimum Distributions for Tax Year 2020).

Consider Contributing to a 529 Plan—Helping a young person with college expenses is a meaningful way to build the next generation. Although 529 plan contributions are not tax deductible at the Federal Level, many states have implemented some tax breaks for contributing to in-state plans.  While you may receive a tax benefit for contributing to your state’s 529 plan, the beneficiary is typically not limited to selecting a school in that state.

Gifting strategies can be complex, the intricacies of which go well beyond the confines of this article.  Proper planning is needed to maximize tax efficiency and advantage.  Our objective here is to offer a few suggestions, which may help you cultivate new ways to exercise generosity, during this upcoming season of giving.

At CAM, we are committed to helping our clients explore and develop their gifting interests.  Many have been blessed and now want to share their good fortune with others.  If we can be of service to you by helping you develop a gifting strategy, we would welcome the opportunity to do so.

Disclaimer:  This article is offered for general informational purposes only and is based on the applicable Tax Code for Tax Year 2020.  The information contained herein is not meant to serve as actual tax or legal advice.  Such matters are unique and should be provided only on an individual basis by competent financial, legal and accounting professionals.