On Charitable Giving

Believe it or not, the Holiday season is upon us.  This is often a time of year when we reflect on the things for which we are thankful and spend time with friends and family.  It’s also a time when many people do a large part of their charitable giving.  With that in mind, I thought I’d take a minute to spotlight four alternative ways to give that you may be less familiar with.

Donating appreciated shares of stock instead of cash

If you have any year-end giving planned and you usually give cash directly to your charitable organization of choice it may make sense to consider donating appreciated shares of stock instead of cash. If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the stock’s fair market value on the day you give it away. And your favorite charity can turn around and sell those shares immediately and tax free. 

This can be a great strategy if you own a stock that has appreciated in value and you’re ready to sell it or if you need to reduce your exposure to stocks or bonds in general but don’t want to pay taxes on the appreciation.  In either scenario you would give the shares of a stock away and immediately use the cash you would have given to charity to replenish your portfolio.  Doing so means you’d potentially reduce the tax bill due when you sell your newly purchased shares in the future.

Lumping and clumping

Speaking of itemizing your deductions.  Your ability to deduct the amount of your charitable gift from your taxable income probably isn’t your primary reason for giving, but it is a nice side benefit.  You could even think about it in terms of the deduction allowing you to give more than you normally would for the same cost.  With that said, the 2017 Tax Cuts and Jobs Act significantly reduced the number of taxpayers who are eligible to claim itemized deductions because it substantially increased the standard deduction while also restricting or eliminating some of the available itemized deductions.  In order to itemize in 2019 your total deductions need to be above the increased standard deduction amount of $12,200 for singles and $24,400 for couples. That means that many people that were used to getting a tax deduction for their charitable gifts may no longer receive one.  Lumping and clumping involves timing certain deductions to hit in one year so you can itemize and then simply taking the standard deduction the next.

Here’s a quick example.  Let’s assume a married couple without a mortgage whose only remaining itemized deductions are their state and local income taxes (“SALT”), capped at $10,000, and their charitable giving.  If they planned to give $10,000 to their favorite charity in 2019, they most likely wouldn’t be eligible to itemize their deductions as their $20,000 in charitable giving and SALT would be below the $24,400 standard deduction. In other words, there is no tax benefit from the $10,000 in charitable giving, because this taxpayer would still claim the (higher) standard deduction with or without the gifts.

However, if they chose to do all of their 2019 and 2020 giving in December of 2019, their potential itemized deductions would increase to $30,000 ($10,000 in 2019 giving, $10,000 in accelerated 2020 giving and $10,000 in SALT.)  That’s above the $24,400 standard deduction so they would pick up an extra $5,600 in tax deductions for the 2019 tax year. In 2020 they probably wouldn’t itemize but they would still be eligible for the higher standard deduction. In this scenario, while the taxpayer is giving the same total dollar amount to charities over a two year period of time, they are actually generating an additional tax benefit beyond the standard deduction they would otherwise have taken.

That may sound like a good idea but what if you don’t want two years’ worth of giving to go to your charity all at once.  If that’s the case, you might consider …

Using a donor-advised fund

A donor-advised fund is like a charitable investment account created for the purpose of supporting charitable organizations you care about. You get an immediate tax deduction for contributions to your fund, subject to the normal charitable giving rules, and you can use the cash in your fund to recommend grants to virtually any IRS-qualified public charity over the time frame you choose.

You can certainly contribute cash to a donor-advised fund but they work really well if you plan to contribute stocks, real estate or business interests that have appreciated in value.  Once your donor advised fund has received the appreciated asset it can sell it tax-free, so that no one has to pay the usual capital gains tax, and you can grant the proceeds to multiple charities over different time frames.

Making a Qualified Charitable Distribution or QCD

Finally, if you’re 70 ½ or older you may be able to transfer up to $100,000 from your IRA directly to charity.  It’s called a Qualified Charitable Distribution or QCD. Why would you want to do this?  The gift counts as your Required Minimum Distribution for the year but it’s not included in your adjusted gross income. That way your gift could give you a tax break even if you don’t itemize your deductions.  And, by lowering your adjusted gross income, you could potentially lower the taxable portion of your Social Security and increase the amount of medical expense deductions you can take just to name a few benefits. 

You could even use a few of these strategies together.  For example, you could do all of your 2019 and 2020 giving (lumping and clumping) by donating shares of appreciated stock to a donor advised fund in December of 2019. From there you could give to the organizations you care about as you see fit. Unfortunately, a QCD cannot go directly to a donor advised fund.

These strategies may or may not be appropriate for you and they all come with some specific rules that need to be followed so check with your CPA or one of us at Beacon first.  As always, let us know how we can help.


Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.