We feel something in the air.
The weather is colder, and the days are about as short as they can be. And, even if you’ve never been busier than you are right now, this time of year can’t help but lend itself to moments of introspection.
Simply, you might be thinking about what your future holds, or looking back at where you’ve been.
As 2019 winds down, our intentions also turn to celebrations and giving.
We’re not only more likely to give energy to family and friends, but for millions of Americans, end-of-year volunteerism enters the conversation.
There’s certainly nothing wrong with that.
But not everyone has time to spare. So, for the busiest among us, the simplest way to pitch in could be charitable giving.
It feels close-to-perfect when you know you’re having a positive impact on the world. In fact, study after study proves that giving and volunteering are extremely good for you.1
And, if altruism and better emotional health aren’t enough, there are the financial incentives that go along with them.
With that in mind, here are four ways to “donate” well.
We work with people who are donating real estate to a non-profit this year.
But, why would anyone do this?
Well, for one person who has no heirs, it was undeveloped property that she wasn’t using (a rugged piece of land she could no longer use for hiking) and selling it would have triggered a large tax bill.
She wanted it to remain undeveloped, and so it will.
But did you know you can also donate property that you are still living in or on?
Just work with your estate planning attorney to arrange to have the ownership of the property transferred after you pass. (If your estate is large enough, and, depending on where you live, this will lower your estate taxes and possibly benefit your kin).
There are some good reasons you should consider donating winning stock(s).
First, since you’re not liquidating the stock(s), you won’t have to pay capital gains taxes.
Second, because you might be trying to keep your taxable income low, any securities that were purchased over a year ago, and have risen in value, could be in line for an income tax deduction equal to the fair (current) value of the stock.
And, in fact, by donating an appreciated stock that you’ve owned for more than a year, you end up donating more than if you simply liquidated the stock and donated the cash.
As much as 20% more.
That’s because, depending on your income, the maximum federal capital gains rate is 20%. And so, if you donate a stock that’s increased in value, you not only won’t have to pay capital gains, but you can still write it off if you itemize your deductions (in lieu of taking the standard deduction) on your tax return.
Cash is both king and queen, and if anyone reading this doesn’t agree, please raise your hand.
But giving it away? For a good cause?
Giving cash is obviously the easiest way to donate to charity. Your tax deduction (if that makes fiscal sense when you file) could be a straight across-the-bow swap that is equal to the amount you gave (unless you receive something [goods or services] in return).
The first rule of donating distributions from your IRA is to know precisely what you are doing. Mistakes are costly, so that means talking to a qualified accountant before you make your move.
(We consulted the accountants at Allworth Financial Tax Solutions for this information.)
With that in mind, here are three likely scenarios dealing with charitable giving and your IRA.
70½ is the age at which you must start withdrawing money from your retirement accounts. (After all, the United States government has probably been waiting a long time for their share.)
So, if you’re, say, 65, and you want to donate money from your retirement account to charity, you must take a distribution from the account (a withdrawal), count it as income for the year (paying any taxes that are due), and then contribute the cash to your charity.
If your income is high and your taxes are commensurately high, this reduces the amount you’ll have left over to give to the charity.
Now it gets interesting.
After age 70½, you need to start taking your required minimum distributions (RMDs), but when it comes to charitable giving and your IRA, here’s where you have options.
Those of you who are over age 70½ (and have saved very well) can contribute up to $100,000 (couples may be able to donate $200,000) from your IRA directly to an eligible non-profit and not have to pay any taxes on the distribution.
You heard that right.
While there are several other considerations, this is called a qualified charitable distribution, and it must be made by December 31st.
Many of our clients name a favored charity as the beneficiary for the assets in their IRA.
Why? Well, the main reason, besides helping the non-profit, is that there are some big benefits that go along with it.
Well, first, no one on your end (not you or your heirs or estate) will have to pay taxes on the contribution.
Second, your estate will receive a tax deduction which can be used to counter any estate taxes.
Third, the process allows you to divide the assets in your IRA up between charities and your heirs (your heirs will owe taxes on the distributions).
And, lastly, and perhaps best of all, because non-profits don’t generally pay income tax, all the money goes directly to helping those in need.
As with anything having to do with your taxes, speak with your accountant before, during and after you donate any of the assets listed above.
And, finally, in the words of Star Trek’s immortal Mr. Spock: Give well and prosper.
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1The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.
2Scott Hanson (2011, 2012, 2013, 2014, 2015 & 2016) and Pat McClain (2012, 2013, 2014, 2015 & 2016). Barron's© magazine is a trademark of Dow Jones L.P. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices.
3As of 01/20, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $8 billion in total assets under management and administration.
4Barron’s 2019 Top 50 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices.
✢Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.
✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.
†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.