5 Smart Charitable Giving Strategies in Uncertain Times

Potential benefits: Not only is it possible to minimize capital gains exposure under this strategy, but it may also allow for a tax deduction for the current fair market value of the donated assets, rather than the original cost basis that a private foundation must use.

4. Elect Charitable Contributions to Offset a High-Income Year

How it works: A “bunching” strategy may reduce taxable income. By frontloading multiple years of charitable giving in one year, it may allow them to surpass the itemization threshold and then elect the standard deduction in subsequent years.

May work well for: Clients on the threshold of a higher tax bracket or with higher income than expected in the future, especially for a unique event (e.g., a financial windfall or work bonus) that is not anticipated to repeat.

Potential benefits: This strategy can reduce taxable income in a given calendar year. When paired with a donor-advised fund, it establishes a charitable “nest egg” that can grow tax-free and support giving now and in the future.

5. During Roth Conversions, Offset Increased Taxable Income With a Charitable Contribution

How it works: When a client’s Roth conversion triggers a taxable event, a charitable gift in the same tax year may offset taxable income.

May work well for: This approach is well suited for those with long investment timelines (over five years) and those who expect higher taxes in the future. (Keep in mind that if you are considering making a qualified charitable distribution (QCD) from an IRA account, remember that some charities are not eligible recipients. This includes donor-advised funds, private foundations and supporting organizations as described in IRC Section 509(a)(3).)

Also look for clients who have inherited an IRA and must withdraw the assets within 10 years of the death of the original account holder.

Potential benefits: The charitable deduction can offset the increase in taxable income triggered by the conversion.

What is a donor-advised fund? A donor-advised fund is like a charitable investment account for the purpose of supporting charitable organizations. Contributions to a donor-advised fund are generally eligible for an immediate tax deduction. Those funds can be invested for tax-free growth, while allowing donors to support charities on their timetable.

Advisors are in a key position to provide the calm perspective and peace of mind that so many investors are searching for during these uncertain times. By incorporating charitable giving into planning conversations with your clients, you not only deepen those relationships, but also demonstrate that you recognize and appreciate their personal goals and values.