Happy Holidays! May Your Gifting Be Tax Efficient

By Christpher Whitaker, CFP, AIF

‘Tis the season! The tryptophan from overloading on turkey is finally wearing off, holiday decorations are getting lugged in from the garage and your annual planner is nearing the last page of the year.

It also happens to be the season for some end-of-year tax planning! One of the most common end-of-year strategies is gifting to one of the many incredible charities that exist. I don’t know about you, but given the choice, I would rather give to my favorite causes instead of to “Uncle Sam.”

Interestingly, there’s a twist that started this year with the new tax laws. The standard deduction was raised considerably.  This means many people will no longer be itemizing their deductions (the category of deduction that most charitable gifting falls into). While this does not prevent anyone from supporting their charitable causes, it does potentially remove the marginal tax benefit you might be used to.

A specific strategy around this higher standard deduction is to operate “above the line.” Not all tax strategies are created equal. Being “above the line” doesn’t require someone to itemize and it actually reduces your adjusted gross income (AGI). For most individual tax purposes, AGI is more relevant than gross income. AGI is like the “halftime score” of a game, except in the tax world, the “halftime score” matters in numerous calculations.

One way to take advantage of what we’ve been discussing is a Qualified Charitable Distribution (QCD). There are several caveats to be aware of, and there are some specific requirements you must meet in order to obtain all the tax benefits of the transaction.

QCD Profile:

  • Must be charitably inclined and not need the money for yourself
  • Must already be at least 70.5 years old on the date of the distribution
  • Limit of $100,000 per person per year
  • Must go to a public charity
  • Check is made payable directly to charitable entity not the IRA owner
  • Be mindful of not receiving any sort of benefit even if it’s something small (like a free coffee mug)
  • Careful reporting by tax payer regarding line 15a and 15b

Clearly, the spirit of giving doesn’t come from the tax benefits you receive. However, if you’re going to be giving anyway, it’s nice for it be done as efficiently as possible! If you’d like to discuss this further, please contact your advisor.

2018-12-17T23:35:27+00:00December 12th, 2018|Newsroom, Wealth Planning|