‘Tis the Season

There are many ways to do good for your favorite causes—as well as yourself—through year-end giving.

By John Reinan

Minnesotans are a giving bunch. Multiple studies in recent years show that we consistently rank among the Top 10 most generous states in charitable donations.

Yet many of us may be overlooking opportunities to do good for ourselves while doing good for others. Financial experts say there are a number of strategies available to maximize the giving experience while not affecting the impact of the gift.

The year’s end is a perfect time to make a gift that could help brighten your outlook when tax time rolls around. And with the new year approaching, it’s also an opportunity to get a head start on financial planning that could make next year’s giving even smarter.

“Year-end giving is important for procrastinators, which is most of us,” said Brad Hanson, a trust and real estate attorney at Quinlivan & Hughes in St. Cloud. “But you don’t have to do it at year-end. My most proactive clients are doing it in January.”

Consider Your IRA

One often-overlooked method is to give charities money from a traditional IRA. Federal tax rules require IRA holders to begin taking money from their accounts when they reach age 70½—no ifs, ands or buts. It’s called a Required Minimum Distribution (RMD).

Those same rules, however, allow the owner of an IRA to give up to $100,000 a year from their IRA to a qualified charity, income tax-free.

“It’s the only way you can take money out of an IRA without reporting it as income,” said Michael Craig, a certified financial planner with Ameriprise Financial Services in Wadena. “The financial planning community has been slow to pick up on this one.”

The key, Craig said, is to have the money sent directly from your IRA to the charity receiving it. If you have the money sent to you, and then pass it on as a gift, you’ll have to report it as taxable income.

“For a lot of people with other income, they view RMDs as a nuisance,” Craig said. “So this is a real win-win. I would say that for anyone who is making regular charitable contributions, when they turn 70½, they should make all their contributions from an IRA if they have the money.”

Give Stocks and Bonds

Another way to get more bang for your charitable buck is to give appreciated gifts such as stocks and bonds. If you own stocks, bonds or mutual funds—particularly if you’ve held them a long time—you can give them to a charity and cut your tax bill significantly. “You should receive the full value of the gift as an itemized deduction (within certain limitations), and you won’t be taxed on the gain,” said Craig. “The charity will sell the securities and declare the gain, but they are tax exempt.”

“It’s a pretty effective gift,” Hanson said. “If someone gives $1,000 worth of stock that they bought for $100, they get the $1,000 tax deduction for the gift, but they don’t have to pay capital gains tax on the $900 increase.”

Don’t Give Grandma’s Dining Room Table

If you’re thinking a charity might like getting great-grandmother’s antique furniture—think again. Many financial advisers steer their clients away from donating non-financial assets, which can be difficult to value.

“There are a lot of land mines in that area,” cautioned Nolan Aho, a certified public accountant and principal at CliftonLarsonAllen in Waite Park.

Donated items require a professional appraisal, “and there are very tedious rules on the type of appraisal that will work,” Aho said. “Even very reputable [appraisal] firms have had insufficient reports that have gotten their clients into hot water.”

If you do have non-cash items that are more readily valued—such as jewelry—you should check in advance with the planned recipient, said Lori Lewandowski, a fiduciary advisory specialist with Wells Fargo Wealth Management Group in St. Cloud.

“Always make sure you talk to the development officer at the recipient to make sure it’s in line with their giving,” she said.

Set Up a Donor-Advised Fund

Lewandowski said donor-advised funds are a good way for givers to stretch their gifts over a longer period. Many foundations, including the Initiative Foundation, will help givers set up a donor-advised fund, in which the foundation holds the money, but the giver provides advice on where it goes.

“A lot of people use a donor-advised fund to teach their children and grandchildren about philanthropy,” she said. “It’s like creating your own foundation without all the tax and administrative responsibilities.”

Another advantage of donor-advised funds: You can deduct the gift in the year you make it, but take as long as you wish to disburse the money.

Cash Gifts

For those who want to give directly to their children and grandchildren, the law allows you to give up to $14,000 to any individual, tax-free. A couple can give $28,000. In 2018, that limit will increase to $15,000 for an individual and $30,000 for a couple.

Prioritize Planning

Planning is the key to taking advantage of laws on charitable giving, advisers say. Tax laws and regulations can be complicated, even for professionals who deal with them constantly. And a potential overhaul of the nation’s tax system could make things even more complicated.

Bottom line: “If you plan proactively, you can get more dollars to the people and organizations you want to get them,” Aho said.

Donors shouldn’t feel guilty about taking advantage of financial giving strategies, Hanson said. If your heart is already in the right place, there’s no harm in using your head.

“People give because they want to help an organization,” he said. “They’re going to make a charitable gift first and foremost because that organization is important to them, and tax advantages are just an extra benefit.”

In this season, when family and community are top of mind, it’s a great time to plan a gift that will help the people and causes you most care about.

“The holidays are a time when families can engage together to support a cause in their community,” said Carrie Tripp, vice president for external relations at the Initiative Foundation. “It is so important for our region and our country that the spirit of generosity is passed on to the next generation.”

Getting Started

Financial planners recommend these simple steps.

• Donate from your traditional IRA. If you’re 70½ or older, you can make a gift of up to $100,000 to a qualified charity directly from your IRA.
• Gift appreciated assets. If you have stocks, bonds or mutual funds that you’ve held more than a year, you can save on capital-gains taxes by giving the appreciated assets to charity.
• Get advice from an expert. Tax laws are complicated and change often. You’ll help yourself and your charity of choice by consulting with an attorney or a financial planner as you create your giving plan.