The end of the year is generally seen as a time to give back, but when it comes to your planned giving, should you really wait until December comes around? Here’s why it’s better to do your planned giving as soon as possible. Plus, don’t miss our top tips on how to maximize the tax benefits of your gifts.
Planned Giving: An Overview
Planned giving is a process through which donors can make a large charitable gift during their lifetime or, most often, following their death as part of a financial or estate plan. Unlike traditional charitable giving, which typically involves cash or check donations, planned giving allows donors to give many different types of assets, including cash, appreciated stock, real estate, artwork, life insurance, and more.
When Should You Make Contributions?
While some assets will give you bigger tax breaks than others, planned giving can be an overall highly effective tax and estate planning strategy. However, contributions must be completed by December 31st, 2022 in order to be eligible for deductions in 2023. The amount of time it takes to make a contribution varies depending on the asset, so the earlier you do your planned giving, the better. If you’re unsure about the timing of your contributions, consult with a trusted wealth advisor.
Planned Giving & Tax Tips to Know
Opt for non-cash assets
While you could do your planned giving with cash or checks, these don’t have the biggest impact on your taxes. Appreciated non-cash assets, such as real estate, are not subject to capital gains taxes and allow you to receive an income tax deduction equal to the asset’s current market value (as opposed to its cost basis). What’s more, these assets are removed from your taxable estate and placed in the charity’s trust tax-free.
Consider a donor-advised fund
Simply put, a donor-advised fund is an account dedicated to charitable giving that is maintained by a 501(c)(3) organization. Through a donor-advised fund, contributions become irrevocable, but donors are able to take an immediate tax deduction, and they can watch their donated assets can grow in a tax-free environment. In addition to the tax benefits, these funds also allow donors to more efficiently settle their estate—and create their own charitable legacy—by establishing a successor who will advise the fund after they’ve passed away.
Combine gifts to maximize your deductions
Many donors won’t meet their standard deduction threshold with a single gift. However, if they bunch their charitable gifts into one tax year, they can exceed the threshold and reduce their tax bill. Let’s say an individual usually donates $15,000 each year, but their standard deduction for 2022 is $25,000. If they choose to donate two or three years’ worth of gifts, they would then qualify for a deduction.
Consider a Qualified Charitable Distribution
If you’re age 70 ½ or older, you may benefit from leveraging a qualified charitable distribution (QCD). With a QCD, you’re able to donate a tax-free gift of up to $100,000 every year directly from your IRA to your chosen charity. As of 2022, these contributions are able to count toward satisfying your required minimum distribution once you turn 72 years old.
With the right planned giving strategy, you can align your philanthropic goals with your tax and estate planning objectives—and Ironwood Wealth Management is here to help. Reach out to learn how we can support you with our comprehensive financial planning services.
