The holiday season is a time for generosity and supporting causes we care about. While cash donations are always appreciated, there are other tax-smart, impactful ways to give. Here are three alternative giving strategies — donations of stock, Qualified Charitable Distributions (QCDs), and Donor-Advised Funds (DAFs) — that can enhance your philanthropy this holiday season.
1. Donate Appreciated Stock
If you own stock or mutual fund shares that have significantly appreciated in value, donating them directly to a charity is an effective way to give. When you transfer appreciated securities directly to a nonprofit, you get a tax deduction for the fair market value of the stock, and you can avoid paying capital gains taxes on the appreciation. Here’s why it works well:
Double Tax Benefits: You avoid capital gains taxes on the appreciated value and claim the full fair market value of the stock as a deduction, which can mean big savings.
Increased Giving Power: By avoiding capital gains, the charity receives the full amount, potentially making your donation go further than if you had sold the stock and donated the cash.
Great for Year-End Tax Planning: Donating appreciated stock allows you to rebalance your portfolio while supporting charities without a tax penalty.
How to Donate Stock: Contact your broker to initiate a stock transfer to your charity of choice. The nonprofit can provide their brokerage details, and the process usually takes a few days, so be sure to plan ahead.
2. Give Through a Qualified Charitable Distribution (QCD)
For those age 70½ or older, a Qualified Charitable Distribution (QCD) from your IRA can be a fantastic way to give back and meet your Required Minimum Distribution (RMD) requirements in a tax-efficient way. Here’s why it’s advantageous:
Tax-Free Transfer: A QCD allows you to donate directly from your IRA to a qualified charity without counting as taxable income.
Counts Toward RMDs: For individuals age 73 and older, a QCD can satisfy all or part of your RMD, reducing your taxable income and possibly lowering your Medicare premiums or Social Security taxes.
Gift Limits: You can donate up to $100,000 annually through a QCD ($200,000 for married couples), and this amount doesn’t require itemized deductions to enjoy the tax benefits.
How to Make a QCD: Contact your IRA custodian to arrange for the direct transfer to a qualified charity. Be sure the funds go directly from your IRA to the charity to qualify as a QCD.
3. Use a Donor-Advised Fund (DAF)
A Donor-Advised Fund is an excellent way to structure your giving and involve family in philanthropy over the years. Here’s how DAFs make year-end giving convenient and impactful:
Immediate Tax Deduction: You can contribute to your DAF and take a tax deduction for that tax year, even if you plan to disburse funds to charities over time.
Investment Growth: Contributions to a DAF can be invested and grow tax-free, potentially allowing you to make a more substantial impact in the future.
Flexible Timing and Choice: With a DAF, you have the flexibility to decide when and to whom to donate, allowing you to support charities on your own schedule.
How to Use a DAF: You can establish a DAF through a sponsoring organization, such as a community foundation or financial institution. Make a contribution to the fund, receive your tax deduction, and then recommend grants to charities over time.
For more information on how you can utilize any of these giving strategies to support WFA this holiday season please contact Sarah Riffle, Chief Growth Officer, at [email protected] or call 501-690-0675.