Kick Off Your Charitable Giving Season: Tax Benefits of Incorporating Charitable Giving Into Your Tax and Estate Planning

Now that Halloween has come and gone and the end of the year is on the horizon, the time is here to plan your short- and long-term strategies for charitable giving.

Depending on who you listen to, the overall economy is still sluggish; however, many individuals still realized significant stock market gains based on bullish market conditions during the course of 2013. Individuals who have enjoyed success in the market this year have realized gains that will increase their gross income, triggering higher taxes.

At the same time, many charitable organizations have been squeezed and were subject to further setbacks when the federal government shutdown stopped fund-raising campaigns. Overall, most reliable indicators report a significant decrease in charitable giving in 2013.

Develop A Charitable Giving Strategy

The core of developing a charitable strategy is deciding what issues you care about most. It is important not to choose too many so that you don’t spread your money too thinly and put your address on too many mailing lists. It’s optimal to have two or three favorite charities – a religious organization if you are so inclined, a medical charity, and a school and arts organization. Visit to make sure the charities you consider are well-managed and put donations to good use.

Give Away Stock

If you have made sizable gains on securities this year (in taxable accounts, not counting those in tax-advantaged retirement accounts), it makes sense to use them as the gift. Here is why: You can deduct the full value of the securities you give away as charitable deductions, but the charity doesn’t have to pay capital gains when it sells the shares.

Say, for example, you own $5,000 worth of stock that you’ve held at least one year and have made $2,000 on it, If you sell it, you have to pay capital gains taxes, typically 15% (20% for top-bracket income earners). If you sold the shares, you would owe $300 in taxes and be able to donate (and deduct) a net of $4,700 to charity. If, however, you give the charity the shares to sell, it receives the full $5,000 and you receive the full deduction too.

Consider A Donor-Advised Fund

Donor-advised funds are charities, often run by large financial companies, that enable donors to lock in their tax deductions for gifts and mass funds, and then dole them out to individual charities on their own schedule. To set up a donor-advised fund, you can open an account with a firm and feed it with shares of stocks or mutual funds. You will get a tax deduction for your contribution this year and can take your time doling out the money to the charities of your choice once you’ve done your research.

Charitable Tax Strategy for IRAs

Although Congress made many recent tax law changes permanent, some provisions must be renewed every year. For example, the so-called “IRA Charitable Rollover” is allowed in 2013, but it may not survive in the future.

This tax benefit applies only to taxpayers age 70½ or older. If you are in that age group, you can transfer IRA money to a charity or charities of your choice, up to a total of $100,000 in 2013. Executed directly, such a transfer could satisfy your required minimum distribution (RMD) for the year. It is important to know that with an IRA charitable rollover, you do not get a charitable deduction, but rather you satisfy the requirements of your RMD for the year with proceeds that are transferred to the charity.

Consider A Charitable Remainder Trust

There are also more significant long-term charitable vehicles, such as a charitable remainder trust, for individuals interested in giving away significant amounts of money. These strategies can also produce short-term income tax benefits.

For example, an individual may transfer highly appreciated securities to a charitable remainder trust, and the trustee of that trust can then liquidate the highly appreciated securities and not pay any capital gains tax on the increased value of the securities. The trustee can then take the total value of the liquidated securities and reinvest those proceeds into other investments. Depending on the terms of the trust, the trustee may also pay income to the individual who set up the trust during his or her lifetime (and even to a remaining beneficiary and, ultimately, to another charity after the lifetime beneficiaries are deceased).

This strategy not only allows the full value of appreciated assets to be liquidated without tax, but it also provides the individual transferring the securities to the charitable trust with the current charitable income tax deduction. This charitable income tax deduction, to the extent it cannot be used all in one year, can be carried forward for up to five years and used on future years’ tax returns. If set up properly, a charitable remainder trust can be a great benefit to both the donor and the charity.


The old adage “charity begins at home” is still true today. The above-referenced charitable giving strategies cannot only provide significant benefits to the charities that receive your donation, but they can also achieve significant short- and long-term tax benefits. As a result, the time is here to consider your charitable giving strategies for this year and beyond.