Food for Thought: Tax Wise Giving

If you are considering a gift to DMARC, you might consider one of the following to help you maximize your gift:

  • Giving appreciated stock
  • Making a qualified charitable distribution through your IRA to DMARC
  • Bunching your gifts to DMARC
  • Giving to DMARC through a Donor Advised Fund
  • Giving to DMARC’s Endow Iowa Fund

Giving Appreciated Stock

There are several benefits –

  1. The knowledge that your money will be invested in a cause you believe in.
  2. You avoid capital gains taxes.
  3. You will be eligible to receive an income tax charitable deduction for the full fair market value of the stock at the time of the gift.

In order to qualify for these special tax advantages, you must have held the security for at least one year. A gift of stock in certificate form should be postmarked by December 31 or your financial advisor can arrange for a year-end gift of stock from your account. And your gift of appreciated stock is fully deductible up to 30% of your adjusted gross income.

If your adjusted gross income is $100,000, up to $30,000 of long-term appreciated stock and other capital gain property may generally be deducted, although high-income donors may be subject to a partial phase-out of itemized deductions. Any excess can generally be carried forward and deducted over as many as 5 subsequent years.

Case Study: Stock gift (value of $10,000) purchased for $2,000 several years ago

Donate appreciated securities outright Donate $10,000 cash Sell securities & donate cash
Charitable deduction $10,000 $10,000 $10,000
Ordinary income tax savings (assumes 35% rate) $3,500 $3,500 $3,500
Capital gains tax paid (assumes 15% tax rate on $8,000 gain) $1,200 saved N/A $1,200 paid
Net Tax Savings $4,700 $3,500 $2,300

Note: DMARC does not provide tax advice. All decisions regarding tax implications of your investments should be done with your independent tax advisor.

Making a Qualified Charitable Distribution to DMARC through your IRA

If you are 70½ years old or older you can contribute up to $100,000 from your individual retirement account without being subject to federal income taxes on that distribution. This law no longer has an expiration date so you are free to make annual gifts to DMARC this year or in future.

Also, when these transfers support our Endow Iowa Fund, they may also be eligible for the Endow Iowa tax credit mentioned above.

Benefits
There are 3 key reasons why an IRA contribution if often a preferred way to give to DMARC

  1. Your gift will be used today, allowing you to see the impact of your gift.
  2. You pay no income taxes on the gift. The transfer generates neither taxable income nor a tax deduction, so you benefit even if you do not itemize deductions.
  3. If you have not yet taken your required minimum distribution for the year, your IRA charitable rollover gift can satisfy all or part of that requirement.

Bunching Your Gifts

What is it?
Bunching is where filers PLAN their charitable gifts over two (or more) years. They give the same amount that they would have over that span of time, but they give it all in one year.

Why?
The Tax Cuts and Jobs Act brought many changes to the tax code, including an increase to the standard deduction ($12,000 for singles and $24,000 for married couples who file jointly), and the elimination of personal exemptions. The charitable giving deduction remains for taxpayers who itemize. However, under the new law, this break is limited to 60 percent of adjusted gross income for cash gifts, but you can carry forward by up to five years any amount that exceeds that.

Due to the higher standard deduction, fewer filers are expected to do so in the future. However, there is a strategy that filers might consider – it’s called bunching.

The Benefit of Bunching: Bunching charitable contributions all in one year allows filers to itemize deductions where otherwise, they would not be allowed to do so.

Example:
A married couple is claiming the maximum property and state income tax deduction of $10,000. They also paid $6,000 in mortgage interest in a year. They will need at least $8,000 of charitable gifts in order to hit — and surpass — the $24,000 standard deduction threshold.

If this couple normally gives $4,000 to charity annually, they can accelerate the gift by cramming in two years of donations into one tax year. This way, they itemize on their taxes one year and take the standard deduction the next.

Changes to federal income tax standard deduction rates:

Taxpayer Status Pre-TCJA tax years* Current tax year*
Individual $6,500 $12,000
Heads of households $9,550 $18,000
Married, filing jointly $13,000 $24,000

*Prior to TCJA, taxpayers over age 65 were allowed to take an additional $1,250 deduction ($2,500 for married couples filing jointly). This deduction continues under JCJA.

Donor Advised Funds

A donor-advised fund, is a dedicated charitable investment account that can be used to support a nonprofit organization. You can make a contribution to a nonprofit (such as a local the Greater Des Moines Community Foundation) which is sponsoring the fund, and then be eligible for an immediate tax deduction.

DMARC is an IRS-qualified nonprofit from which you can then recommend grants to, over time. The donor advised fund also has the advantage that is invested and grows tax-free.

If you don’t need to make a required minimum distribution, it may make sense to explore other options, such as a donation of appreciated securities. Donors should always consult a tax advisor to determine the best strategy for their situation.

DMARC Endow Iowa Fund

Giving a gift to DMARC’s Endow Iowa Fund is a great way to help support DMARC’s mission! The fund is housed at the Community Foundation of Greater Des Moines and contributing to the Fund allows you to make a gift to the future of Iowa while also receiving a generous 25% state tax credit.

Endow Iowa was created to enhance the quality of life of Iowans through increased philanthropic activity and encourages new investments to existing community foundations across Iowa.
Learn more: https://www.desmoinesfoundation.org/giving/tax-benefits-1/endow-iowa-tax-credits-2

For more information

We are available to help. To learn more or how you might make the most impact with your support, please contact Leslie Garman, Director of Development & Outreach at (515) 277-6969 x 13 or email her at LGarman@dmarcunited.org.

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