5 Strategies for Tax-Efficient Charitable Giving– March 15, 2018

Posted by Guest Blogger Don Laubacher, CFP®, CPA, AEP®, Sequoia Financial Group, LLC

Most people know that when they make a charitable gift and itemize their tax deductions the federal government is subsidizing that gift. What is less understood, however, is that the amount of the subsidy can vary significantly depending on the type of asset and the manner in which it is donated.
For the most tax-efficient giving, consider the five following strategies. 

  1. Think Beyond Cash. Rather than writing a check, take a look at your portfolio with a plan of donating stocks, mutual funds, real estate and other appreciated assets you’ve held for a long time. You can deduct the entire market value of the asset, and avoid the potential income tax and Medicare surtax assessed on the gain since the charitable organization is not required to pay either tax.
  2. Offset Capital Gains Generated by Portfolio Rebalancing. Many investors routinely rebalance their portfolios to ensure that their investment allocation remains consistent with their goals. Often this involves selling investments that have done well, which may generate capital gain. You can offset these gains by aligning your charitable giving with the rebalancing process. If you donate an appreciated security you’ve identified for sale, you may end up with more cash available to purchase the assets needed as part of your rebalancing exercise.
  3. Use Your IRA to Make Gifts. In December 2015, Congress finally made permanent the ability for individuals over the age of 70 ½ to make charitable gifts directly from their IRAs. This may be a good strategy for those who do not need all, or some portion, of their required minimum distribution. Users of this technique do not report either the income or the deduction on their tax returns. In return, this technique may reduce the portion of Social Security income subject to taxation and avoid state income taxation in states (such as Ohio) that are based on federal adjusted gross income.
  4. Offset the Tax Cost of Converting a Traditional IRA to a Roth IRA. Roth IRAs offer great advantages and flexibility in retirement because distributions are tax-free, and there are no required minimum distributions. The problem is that converting all or part of a traditional IRA to a Roth IRA generates ordinary income subject to the highest tax rates. Making a significant gift in the year of conversion can help offset that income. This strategy may work if you have sufficient non-retirement assets to pay the cost of the conversion, and can make a larger than usual charitable gift either directly or to a donor-advised fund.
  5. Establish and Contribute to a Donor-Advised Fund. This strategy allows you to shift charitable deductions into the year most beneficial for your tax planning, and it separates tax planning from charitable gift decisions. You donate cash or appreciated property to a donor-advised fund that you establish typically at either a brokerage firm or a community foundation, and it functions like an escrow account for your charitable gifts. You receive the charitable deduction in the year the assets are transferred, but the disbursements from the fund are subsequently made to IRS-approved charities at your preferred pace. 

Talk with your financial and tax advisors about these and other strategies to help ensure you are making the most of your charitable contributions.
Don Laubacher is Senior Vice President of Family Wealth at Sequoia Financial Group, LLC. Contact him at dlaubacher@sequoia-financial.com  or visit www.sequoia-financial.com 

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
The material contained herein is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. Sequoia Financial Advisors, LLC does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. Though related entities, Sequoia Financial Group, LLC and its affiliates, and Cohen & Company, Ltd. are separate companies with common, but not identical ownership. Investment Advisory Services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor.