As 2022 is winding down to a close, Thanksgiving and the holiday season is now upon us. I hope that you have many things to be thankful for this year; I know I sure do. I am grateful for my family, friends, career, co-workers, health, and families that we are blessed to serve at Financial Enhancement Group. The last few years have been very trying for many folks, but one thing I am blessed to see in my profession is the natural desire, and genuine passion people have to help one another. One of the most significant ways that I see this passion play out is when our FEG families use their resources to gift to charities or individuals in need. If you are thinking about year-end giving, here are two ways to maximize the tax efficiency of your donation.
Appreciated Stock Donations: An effective strategy for giving that will maximize charitable impact while minimizing your overall tax obligation is to donate appreciated stock held longer than one year. Donors who use this strategy generally can eliminate the capital gains tax they would otherwise incur if they sold the assets first and donated the proceeds. Suppose you bought 100 shares of ABC Corp. three years ago at $20 per share for $2000(cost basis). If ABC Corp. currently trades at $100 per share, the market value of your 100 shares has risen to $10,000. If you were to sell those shares to donate the after-tax proceeds to charity, you would owe $1600 in federal taxes under the top long-term capital gains tax rate of 20%:($10,000 – $2,000) X 0.2 = $1600. Your total donation to the charity would be $8400. If you were to donate your shares of ABC Corporation directly to the charity and they sold the shares, the charity would receive the full $10,000 donation, and you would be able to receive a $10,000 deduction if you itemize on your tax return, also avoiding $1600 in federal capital gains tax.
Qualified Charitable Distributions (QCD) – Individuals age 70.5 or older can contribute up to $100,000 per year using a QCD. For married couples, each spouse can make QCDs up to the $100,000 limit. Qualified charitable distributions are made directly to the eligible charity from IRAs. The money is a direct transfer that never passes through the hands of the IRA holder. Instead, the IRA custodian can send a check directly to the charity or the account owner, who then hands it over to the charity. Here are a couple of reasons why a QCD may make sense for you:
- To lower the balance in your IRA to reduce future Required Minimum Distributions.
- Required to take a minimum distribution from an IRA, but don’t need the funds and would have increased tax liabilities if the distribution was taken as income.
This holiday season, the team at Financial Enhancement Group hopes your homes are full of family, food, and fun.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.