Giving Back in 2020

February 22, 2021

For many, the end of the year can spark focus on giving back. There are many methods of giving time, resources, and assets. For some, the act of getting involved is as rewarding as writing a check. In 2020, we are unable to feel the personal connection of volunteering our time and feeling the connective pulse of the community. For those looking to still find a way to give and also consider strategy and tax efficiency, there are plenty of customizable solutions.

One approach that can be tax-advantageous and span generations of charitable impact is the Donor Advised Fund. A donation to this type of investment vehicle allows an investor to receive an immediate tax deduction for that tax year while also allowing the investment (of cash, securities, or other assets) the ability to continue to grow. The investor can then use the assets to donate to their favorite charitable organization in the future. For a young investor, recently able to donate, a DAF is a great way to grow small investments to create a bigger impact in the future. For an investor with highly appreciated assets, or a concentrated stock position the DAF allows for more customization on their tax implications of donating.

For those who are charitably inclined and over the age of 72, there is the option to make a qualified charitable distribution (QCD) from your retirement plan. When forced to satisfy the required minimum distribution on a retirement account, there is an income tax consequence. This tax can be avoided if the required amount is given directly to charity from the retirement plan. There is another consideration for those who may have itemized deductions that fall below the standard deduction; recently simplified since the 2017 TCJA changes. “Bunching” is a strategy that involves concentrating years of donations into one year, then skipping subsequent years. This strategy does require more attention to the tax-filing process and should involve a tax professional.

Generosity is a fortunate function of modern society, and many target their resources to their causes of choice. When looking to give this season, look to these options to ensure that the approach works for your long term investment plan. Contact the Hamilton Walker Team to discuss charitable strategies that are right for you.

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