Give Smart – The Top 3 Things to Remember
Now is the time of year to be generous (and savvy about how you do it)

137933374Key Takeaways

  • Giving to individuals
  • Giving to charity
  • Easy ways to give

At this time of the year, many people are moved to give to family and charity.  It makes us feel great and so many people benefit from our collective charity that it normally improves society. But, before you start writing checks to support your favorite causes, make sure you give smart. Let’s take a brief summary of the rules.

1. Giving to Individuals

We each have the ability to give away $14,000 annually per donee (to an unlimited number of donees) without incurring federal gift and estate tax. If you’re married, this annual gift exclusion can be combined with a spouse’s gift for a total of $28,000 per year tax-free.  In addition to annual gifts, we each have the ability to gift $5.43 million during our lifetime or at death without incurring federal estate tax.  Transfers between spouses, in which both spouses are U.S. citizens, are unlimited.  Finally, donations to individuals are not tax-deductible.

2. Giving to Charity

Your deduction for charitable contributions cannot amount to more than 50 percent of your Adjusted Gross Income (AGI) for the year, and lower percentage limits can apply, depending on the type of property that you give and the type of organization to which you contribute. Most organizations can tell you whether or not they are 50 percent limit organizations.  Even better: You can carry over into the following year any contributions that you aren’t able to deduct in the current year because they exceed your AGI limits. You can deduct this carryover amount until it is used up–but not beyond five years from the time you started.

You generally can deduct the fair market value (FMV) of property at the time you give it to a charity. FMV is the price a willing seller receives from a willing buyer for the property, with both parties knowing the relevant facts about the property.  If you receive a benefit as a result of making a contribution, you can deduct only the amount of your contribution that exceeds the value of the benefit received.

3. Easy Ways to Give

The easiest, but most expensive, way to give to charity is to write a check.  A more efficient way to support a charity is by gifting highly appreciated assets.  Let’s assume you bought ABC fund for $1,000 ten years ago and now it’s worth $2,500.  If you sold the fund, you would have to pay tax on the $1,500 gain ($2,500 minus cost basis of $1,000). But by giving the stock to charity, you avoid paying tax on the gain and your tax deduction is based on the current market value of $2,500.

If you’re interested in giving to a charity on a more sustained basis, a donor-advised fund (DAF) offers an easy way for you to make significant charitable gifts over a long period of time. A DAF is similar to a private foundation, but a DAF requires less money, time, legal assistance, and administration than a private foundation to establish and maintain. With a DAF, a donation to the fund can be made in Year One, and then distributed over many years to many different charities.  You will receive a tax deduction in Year One, but not in subsequent years when the funds are distributed to charities.  While the money is waiting to be distributed to charities, it can be invested and continue to grow.

DAFs can be very effective for sheltering a windfall. For example, let’s say a corporate executive receives a large bonus at year-end. A large portion of that bonus could be gifted to a DAF and the executive could receive a tax deduction for the gift which would shelter the large bonus payment.

Conclusion

Charitable giving is a cornerstone of our wealth management process.  Contact us any time of year to help you make your gifting as smart as possible (610.695.8070). As legendary 19th century playwright, Oscar Wilde famously quipped, “No good deed ever goes unpunished.” Don’t let that happen to you.

About Mark Rioboli

Mark A. Rioboli, CFP®, CFS is Director of Wealth Management for Independence Advisors, bringing over 25 years of experience in the wealth management industry. Have a question for Mark? CLICK HERE TO ASK MARK

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