5 Tax-Efficient Charitable Gift Strategies
The tax year is almost over, but the Jewish Community Foundation of the Minneapolis Jewish Federation (JCF) is here to help! Make the most of your charitable gift while potentially realizing tax savings.
1. Gift Appreciated Assets
If you have owned appreciated assets, such as stock or real estate, for more than one year, and you donate it directly to a charity, you avoid capital gains tax on the appreciation and are entitled to a charitable deduction equal to the full fair market value of the property. Gifting appreciated assets to open a fund or add to an existing fund at the JCF is a simple, single transaction that allows you to then make donations to multiple nonprofits from your fund.
2. “Bunching” Gifts
Make multiple years’ worth of donations to nonprofits in one year in order to overcome the standard deduction for that tax year. Under the new law, up to 100% of an individual’s adjusted gross income (AGI) can be used for cash gifts to nonprofits in 2020
3. Gift IRA Minimum Distributions
This year the required minimum distribution (RMD) age has been raised to 72. If you are over the age of 72, you must take a RMD. Although RMDs don’t start until 72, you can still make a qualified charitable distribution (QDC) if you are 70.5 or older. You may donate up to $100,000 of your QCD tax-free directly to one or more nonprofits. The QCD counts towards your annual RMD.
Please note the required distributions from IRAs are suspended in 2020. Even though the RMD is suspended for 2020, rollover contributions to qualified charities could still make sense for some. If you reach age 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach age 72. Please consult your professional advisor for advice regarding your specific circumstances.
4. Front-Load a Donor-Advised Fund
“Bunching” multiple years’ charitable donations to open a DAF or add to an existing DAF may help you reach a total of itemized deductions that are greater than the standard deduction for a single tax year. The charitable dollars will be invested for growth in the fund, increasing the sum available to give to charity. You can then make charitable donations on your own timeline. Cash added to a DAF cannot count towards the 100% AGI deduction.
5. Gift Retirement Assets in Your Estate
Assets in tax-deferred plans (IRA, 401(k), 403(b), etc.) are subject to income tax when distributed to heirs. Naming a charity, such as Federation, as a beneficiary of your plan may help your heirs avoid income tax while you give to charity. You can also use this to open or add to an existing fund or endowment.
*The Jewish Community Foundation of the Minneapolis Jewish Federation does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors before engaging in any transaction.
To learn more about the Jewish Community Foundation of the Minneapolis Jewish Federation, visitjewishminneapolis.org/foundation.
