6 end-of-year tips for charitable giving before possible tax reform


Although a possible tax reform could have an impact on your financial planning in 2022, there is still time this year to take advantage of the current climate and potentially save on your 2021 tax bill. year and season of giving, your charitable strategy can be a powerful force in making a difference for the causes you care about and potentially minimizing some of your tax burden.

Whether you are writing checks to your favorite charities, preparing for retirement or the peak of your career, or have had a high earning year selling your business or receiving a bonus, you can always take measures to reduce your taxable income. Work with your trusted financial advisor to leverage these five giving strategies and create more impact before it’s too late:

1. Think beyond cash as a donation

Choosing the right asset to fund your giving can enhance your philanthropy. Instead of writing checks or entering your credit card number, examine your wallet in preparation for donating long-term valued securities (stocks, mutual funds or bonds) or shares of private companies often neglected (LLC, LP interests, C- or S- corporate actions). Cryptocurrency (Bitcoin, Bitcoin Cash, Ethereum, and Litecoin) is also a great source of philanthropic funding right now that should definitely be considered.

Why? Capital gains taxes can be eliminated when you bring long-term appreciated assets directly to a charity instead of selling the assets yourself and donating the after-tax proceeds. When you assume 20% federal long-term capital gains tax, plus a 3.8% Medicare surtax, it results in a potential increase of at least 23.8% in your charitable contribution and a potential reduction. of your tax payable.

2. Make a charitable donation to minimize capital gains through portfolio rebalancing

Many savvy investors rebalance their portfolios on a regular basis to ensure that their investment mix is ​​in line with their objectives. This often involves selling investments that have worked well, which generates capital gains taxes in the process.

One simple strategy is to align your charitable giving with the rebalancing process. Instead of donating cash, using credit cards, or writing a check to a favorite charity this year, consider donating the most beloved security you’ve held for over a year. Capital gains taxes will generally not apply to you or the charity receiving the donation. Then, because you used up an asset in your portfolio and didn’t “spend” the money you originally donated, you could use that money to make additional investments.

An interesting example of this strategy could give you the added benefit of resetting the cost base of your favorite stock to its higher current fair market value. If you’re not ready to say goodbye to a particular stock in your portfolio, you can donate the stock and then use the original funds you would have donated to buy back your stock and reset your cost base. Your holding period begins when you redeem the stock, so you’ll need to hold the new stock for 12 months or more before you qualify for long-term appreciation rates on any future appreciation.

3. Create a larger deduction for the current year by combining cash and securities

While donating long-term valued securities generally eliminates exposure to long-term capital gains, you are limited to 30% of your adjusted gross income (AGI) to deduct contributions from those valued securities. That’s good enough for most people, but there are some years when you might get a larger charitable deduction for the current year. In these particular situations, you may choose to supplement a charitable donation of securities with a charitable cash contribution. This strategic combination of giving offers an opportunity to reduce your tax liability.

This strategy may have even more impact this year: COVID relief legislation allows you to deduct up to 100% of your AGI for cash donations to qualifying public charities, excluding advised funds by donors. Talk to your financial advisor to find the right combination of securities and cash donations that will have the most impact on your personal situation.

4. Are you planning your retirement? Turn your currently high tax bracket into a benefit

If your tax bracket is higher today than you expected in the future, consider anticipating your charitable giving by making a large contribution now, rather than smaller donations in retirement. Not only could you benefit from tax savings for the current year, but you will also have charitable assets earmarked for future grant recommendations. This strategy allows you to continue to generously support charities when you have a fixed income in retirement, that time in your life when you can be more focused on high impact philanthropy.

To make this strategy even more effective, consider using a donor-advised fund, such as the Fidelity Charitable® Giving Account®, to make this pre-retirement contribution. Donating to a charity with a donor advised fund entitles you to an immediate tax deduction while still giving you time to explore the causes and organizations you want to support. No rush, which might take away the joy of giving. Best of all, funds put into a donor-advised fund can be invested for potential tax-free growth, potentially providing even more support for your favorite charities in the long run.

5. Combine several charitable contributions in one year to exceed the standard deduction

The standard deduction of $ 25,100 (for couples filing jointly) in 2021 may be difficult to achieve for some taxpayers, especially since there are fewer tax deductions available than in past years. If you fall into this category, it may not be a good idea to itemize your tax deductions. But how can you still get a tax advantage for charitable donations? One strategy to consider is called “bundling”. This year, you could contribute over several years of your annual donation expected to exceed the retail threshold. In off-peak years, you could then benefit from the standard deduction.

This strategy could also be effective if your income is particularly high this year, perhaps thanks to a year-end bonus, or if you have sold a business or real estate that is valued in the long term, benefited from taxable wealth. Or other.

Whatever the reasons for your reunification, combining several years of giving into one year can help you exceed the standard deduction and allow you to benefit from a higher income tax deduction than that of a donation of a single year. If you use a charitable vehicle, such as a donor-advised fund, to complement this strategy, you can also maintain the same level of support for nonprofits in the years to come by tapping into the charitable balance you have put aside this year.

6. Make a charitable donation to minimize the tax costs of converting a traditional IRA to a Roth IRA

Converting a traditional IRA to a Roth IRA usually means paying significant taxes. However, since the conversion can still be a smart strategy for your overall financial situation, you can help minimize this tax event by making a charitable contribution. This strategy may work if you already make regular donations to a charity, if you have enough non-retirement assets to pay the cost of the conversion, and if you plan to make a larger charitable donation. usually the year of conversion. Again, consider using the long-term valued assets of your wallet to fund your charitable donation in order to potentially achieve even more tax savings than if you donated cash.

Give more, save more and make more of a difference

If you’re like most people, you donate to charity because you want to make an impact on the world or support the causes that matter to you. But how much and when you give is usually a financial decision. Tax incentives and tax-efficient strategies like these can help you give more than you otherwise could and provide more resources to the causes that matter to you. Before any new, game-changing tax laws are enacted, be sure to seize this time before the end of the year to make tax-efficient charitable giving and change lives.


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