19 May 2020
About 10 years ago, I lived in Israel near a youth village called Yemin Orde. The school supported at-risk and immigrant youth and helped them achieve excellence. I grew to learn a lot about their community; one that brought a local sense of pride. Around this time, they were affected by a bad forest fire that became international news. The U.S. sent over aid and we all did what we could to help.
I haven’t always been the first to spearhead philanthropic events, but this was different; there was an unspoken obligation to step in. I went into “go mode” and organized a fundraiser — making pastries, booking a speaker, and then sending the cash over with the hope it could help rebuild and restore. My big takeaway? Disaster can strike quickly, but you can respond just as fast.
Collectively, we’ve come to know times of hardship; but even when fear takes over, it can motivate us even more to take action. In all kinds of circumstances, Americans have proven themselves to be historically charitable — think donations around the holidays, sidewalk activists and charity advertisements on TV or social media. Some think our philanthropy stems from potential tax write-offs, but I believe it’s something more: we give our hard-earned dollars away because we value other members of society.
With that said, taxes are still a consideration when giving — and it’s important to stay aware of changing laws and how they might impact your donations. People want to give back and individual giving has historically made up a bold percentage of donations yearly. But in order to keep those numbers strong, it’s fundamental to keep one another informed.
By educating our peers on some lesser-known charitable tax strategies, we can continue to donate at historic rates and change people’s lives.
Consider gifting appreciated taxable assets to charities. For example, say you bought $1,000 of stock, and it has grown to $10,000. You may want to use this to make a donation. But selling the shares would trigger a hefty tax bill, right?
Not necessarily. By directly gifting your stock to a qualified charity you could avoid capital gains tax, enabling you to donate all $10,000 tax free. So, if you are charitably inclined but your cash flow is thin, you could use this strategy to give back without compromising your budget — or your desired gift amount.
Required Minimum Distributions (RMDs)
If you are nearing age 72, you may have to take annual withdrawals called “required minimum distributions” (RMDs) from your retirement accounts. RMDs are subject to income tax and can even trigger higher tax rates on your Social Security benefits and increase your Medicare premiums. They are inconvenient if you don’t wish to withdraw during certain years of retirement.
Talk to your financial professional about qualified charitable distributions (QCDs). Your RMDs would be delivered directly to a qualified charity, avoiding income tax. This way, you can continue to give back in a tax-advantaged way.
Socially Responsible Investments (SRIs)
If your budget doesn’t allow donations right now, that’s okay — you can still help causes you care about with your investments. By choosing socially responsible investments (SRIs), you can dictate what kinds of companies you are investing in. If you value nature, research an SRI fund that invests in green companies and consider holding the fund in a tax-sheltered account. This is just one more way to do good while avoiding taxes on your gains.
Staying philanthropic is an important step in strengthening any community. With some helpful research and a considerate approach, embracing knowledge around chartiable strategies can help make yearly giving a proud part of your holistic tax view. There are many ways to give, and they all factor into a #MindfulTaxes approach.
At In Good Company, we are all about helping people align their money with their values. By becoming aware of what it is we truly care about, we are able to allocate wealth towards corresponding causes. That’s why we are committed to empowering people to give back and connecting your employees to professionals who can help make giving more tax efficient.