Giving back to the community is a great way to spread good cheer further than just your family’s holiday table, not to mention teach the kids and grandkids about how to manage money. We spoke to a couple of experts – Mary Meadows Livingston, President and Founder at Abeona Wealth, and Lora Blalock, Vice President of Philanthropic Services at the Community Foundation – to learn more about end-of-year giving. The advice is clear: Get started now (rather than waiting until December 31st!) to benefit both your neighbors and your tax bill.
If you are in Requirement Minimum Distribution (RMD) mode, 72 or older, you can give all or a portion of your RMD amount directly to a charity and it will be excluded from income.
If you have a retirement account, such as an IRA or 401K, you have to withdraw a portion each year after age 72, potentially impacting income and your tax bracket. However, if you don’t need those funds to support your lifestyle, you can have the money sent to a charity so it doesn’t count as income or bump you up a bracket, explains Livingston. Keep in mind the QCD (Qualified Charitable Distribution) limit is $100K.
Give appreciated securities, rather than cash, to charities. This gives you doubled tax savings with a charitable deduction and no capital gains tax.
If you have stocks, mutual funds or other holdings, instead of writing a check to your favorite charity from your bank account, you can give the gains to the charity and avoid having to pay capital gains taxes, says Livingston.
Donor advised funds can be a great vehicle for managing charitable distributions.
Want to simplify your giving? Create a fund exclusively for charitable giving. The Community Foundation offers donor advised funds, for example. From there, you can simply say how much you’d like to send and to which organization. “It allows someone else to manage the account, instead of you keeping up with multiple tax receipts,” Livingston explains.
“With one charitable gift to the Community Foundation, families can establish a donor advised fund. This fund can, in turn, make distributions – or grants – to any nonprofit organization of the family’s choosing,” says Blalock. “As a nonprofit institution itself, the Community Foundation provides a tax receipt to the donor for their gift, and then manages the back-office processes of deploying grants, performing compliance, and investing the fund to grow over time.”
Remember, giving back is one way to transfer family values about money.
Having a conversation around charitable giving can help younger family members learn how the family makes financial decisions and is an easier way to start some tough discussions about money, Livingston points out.
“You can talk about asset growth and how it relates to lifestyle and strategic spending on charities,” she says. “Grandparents or parents can offer children a set amount of money, then let them research and choose a charity to give it to. This provides an opportunity to have discussions about being good stewards of the family resources and about what the family has done in the past.”
“Donors can also use our legacy platform to involve their family in philanthropy after they are gone. A Family Legacy Fund creates a way for family values to be passed from generation to generation,” Blalock adds.
Grandparents, aunts, uncles and other relatives or friends can consider giving funds to a child’s 529 education savings account as a holiday gift, rather than adding to the stack of toys.
Much like an IRA, a 529 is an account reserved for education. The money in it can grow and then, if withdrawn for the purpose of education, never be taxed, explains Livingston. Families in Alabama can enroll in the CollegeCounts 529 fund. Out-of-state funds, as well, can be rolled into these accounts.
Keep in mind the annual gift giving limit without having to file a gift tax return is $15,000 per recipient or $30,000 if the gift comes from a married couple.
Families often give younger members gifts of money for education, a home, a wedding and more. According to Livingston, family members who want to give a financial gift can give up to $15,000 per person for it to be considered a tax-free gift.
Talk to your accountant or financial advisor about a strategy well in advance of the year’s end.
Make sure to consult your financial advisor or accountant about these strategies well ahead of the end of December. “This advice is individualized, so find out which strategy might be a fit for you. And keep in mind there are different deadlines,” Livingston points out.
“Our team can work with you and your advisor to help identify giving strategies that provide both a tax benefit and utilize philanthropy to create community impact.,” Blalock adds.