Compared with donating cash, or selling your appreciated securities and contributing the after-tax proceeds, donating appreciated securities is a very tax-efficient means of gifting. You avoid paying capital gains tax on the profit of those securities and you can take a tax deduction for the full fair market value of your donation (subject to limitations).
Qualified Charitable Distributions (“QCDs”) are distributions made from an Individual Retirement Account (“IRA”) directly to a qualified charity. QCDs are permitted for individuals age 70½ and older up to $100,000 in the calendar year 2023.
When processing a QCD, the corresponding 1099 from your custodian will NOT list the distribution as a charitable contribution, thus it is incumbent upon you to notify your CPA that the distribution was a QCD. Note, QCDs cannot be made to a Donor-Advised Fund.
A Donor-Advised Fund (“DAF”) is a charitable giving account that is set up with your custodian to manage your charitable donations. You receive an immediate tax deduction when making a charitable donation to the DAF and you direct the custodian when to disburse funds (grants) to the qualified charities of your choice.
This strategy works well when an individual has appreciated securities (stocks or mutual funds) that he or she has owned for at least a year and would now like to donate. Once donated to the DAF, the assets can remain there until you provide further instructions on when the funds are to be disbursed to your charity of choice. This is particularly useful when an individual has higher-than-usual income, such as from the sale of a business or a large bonus. The individual can front-load several years’ worth of charitable gifting in one year (DAF gift) to receive a larger tax deduction that particular year. Then, the individual can direct smaller amounts be made from the DAF (grants) to qualified charities over the ensuing years.
Ask Your Wealth Manager or CPA if you are looking for ways to make a difference and minimize your tax obligation before year-end.
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CHART: Due to various factors, including changing market conditions and/or applicable laws, the illustration may no longer be reflective of current opinions or positions. Moreover, you should not assume that any information contained in this illustration serves as the receipt of, or as a substitute for, personalized investment or tax planning advice from Beaird Harris Wealth Management, LLC To the extent that a reader has any questions regarding the applicability of any specific issue illustrated above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Beaird Harris Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the illustration should be construed as legal or accounting advice. A copy of the Beaird Harris Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees is available for review upon request.
The possibility of capital gains tax should be understood before selling your residence. Tax surprises here could be costly!
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