With just a few weeks left in 2021, you may be thinking about how to approach your charitable giving plan. Several tax-conscious strategies for charitable giving – including gifts of appreciated stock, qualified charitable distributions, and donor-advised funds – remain effective in the current environment. Here we highlight some opportunities for charitable giving between now and December 31 that may help you achieve your charitable goals and maximize your income tax savings.

Gifts of Appreciated Stock A charitable contribution of appreciated securities – such as stocks, bonds, and/or mutual funds that have realized significant appreciation over time – is one of the most tax-efficient ways to give.  By giving the gift of appreciated stock that you’ve held for more than a year, you receive a double tax benefit:

  • You avoid capital gains tax on the appreciation that would be due upon sale.
  • You can receive a charitable income tax deduction for the current fair market value of the property – up to 30 percent of adjusted gross income.
  • You can carry forward any unclaimed portion of the deduction for up to five additional years, subject to the annual limit.

Make a Qualified Charitable Distribution (QCD) from an IRA A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity, as described in the QCD provision in the Internal Revenue Code. QCD’s may be particularly appealing if your client has a few other itemized deductions or if they are near their charitable deduction limitations. A QCD must meet the following requirements:

  • You must be at least 70½ years old at the time you request a QCD. If you process a distribution prior to reaching age 70½, the distribution will be treated as taxable income.
  • For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline, which is generally December 31 each year.
  • Funds must be transferred directly from your IRA custodian to the qualified charity.
  • The maximum annual distribution amount that can qualify for a QCD is $100,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If you’re a joint tax filer, both you and your spouse can make a $100,000 QCD from your own IRAs.
  • The account types that are eligible for QCDs include:
    • Traditional IRAs
    • Inherited IRAs
    • SEP IRA (inactive plans only)
    • SIMPLE IRA (inactive plans only)

Donor Advised Funds. DAFs allow donors to maximize the tax efficiency of their charitable giving by generating a tax deduction when it’s most valuable to the donor, then allowing for distributions out of the DAF to charities over years to come.  Current rules allow for one to deduct up to 60% of AGI for cash contributions and 30% for appreciated stock as well as receive fair market value for the contribution of assets. Additionally, funds in your DAF account can be invested and grow over time, thus enhancing (tax-free) the gifts that will ultimately be made to an operating charity. Other reasons financial advisers are high on including a DAF in one’s overall financial portfolio include:

  • Creating a legacy DAF that can help reduce estate taxes.
  • Funding a DAF while approaching retirement so one could get the tax deduction while they were still making a high income.
  • Creating an account for children to give separately and “learn” how to be a strategic giver.
  • Using a DAF in connection with another operating charity to meet the unique 2020 and 2021 100% AGI tax deduction made possible by the CARES Act.

Callan Capital does not provide legal or tax advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with securities-based financing, residential and commercial financing, and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.