As summer has come to an end, many attorneys, CPAs, and financial advisors are already thinking ahead to year-end planning. That’s smart, especially where charitable giving is concerned. Now is an ideal time to revisit key strategies with your professional advisors!
Bunching Charitable Gifts
The weeks leading up to year-end often pass way too quickly, which means now is the perfect time to talk with your professional advisors about “bunching” charitable gifts into a donor-advised fund.
What is "bunching" and why is it so useful under current tax law?
Bunching Charitable Gifts
The weeks leading up to year-end often pass way too quickly, which means now is the perfect time to talk with your professional advisors about “bunching” charitable gifts into a donor-advised fund.
What is "bunching" and why is it so useful under current tax law?
- Rather than making charitable gifts in roughly equal amounts each year, you may benefit from consolidating two or more years of planned charitable contributions up front into a single tax year.
- By concentrating -- or "bunching" -- donations into one year, you may be better positioned to itemize deductions in that year while claiming the standard deduction in subsequent years, potentially producing greater cumulative tax savings over time.
A donor advised fund at the Community Foundation serves as an effective vehicle for implementing a bunching strategy. That's because you can make a single, larger contribution to the donor advised fund, generally claim the charitable deduction in the year of the contribution under Internal Revenue Code Section 170(a), and then recommend grants to favorite charities now and into the future. In short, the timing of the income tax deduction is separated from the timing of charitable distributions, allowing your favorite nonprofits to continue receiving consistent annual income.
Stock Gifts and the "High-Low Average" Rule
Appreciated stock is one of the most tax-efficient assets to give to charity, but few understand how the IRS actually values those gifts. Work with your professional advisor to review the "high-low average" rule.
What is the "High-Low Average" Rule?
Suppose you transfer shares to a donor advised fund at the Community Foundation on August 20. On that date:
Stock Gifts and the "High-Low Average" Rule
Appreciated stock is one of the most tax-efficient assets to give to charity, but few understand how the IRS actually values those gifts. Work with your professional advisor to review the "high-low average" rule.
What is the "High-Low Average" Rule?
Suppose you transfer shares to a donor advised fund at the Community Foundation on August 20. On that date:
- High price: $82.40
- Low price: $79.60
- Closing price: $81.95
You may understandably assume your deduction will be based on the $81.95 closing price. Under the applicable valuation rules, however, the value generally used is the average of the high and low prices: ($82.40 + $79.60) ÷ 2 = $81.00 per share.
The relevant date is generally the date the gift is considered complete for federal tax purposes, which may differ depending on how the securities are transferred and when control passes to the charitable organization. Because of these nuances, it is wise to coordinate closely with the Community Foundation whenever timing is critical, such as at year-end.
Fortunately, the Community Foundation for Western Iowa works with gifts of appreciated securities every day and can help facilitate smooth transfers. Especially as the fall planning season approaches, donors often focus on maximizing charitable deductions while avoiding capital gains tax on appreciated investments.
Our team is available to work in tandem with you and your financial planner to answer questions and make sure your year-end charitable giving meets the goals you'd like to achieve. Please contact us for any questions or assistance. We are honored to be your philanthropic partner as you Give Where We Live!
The relevant date is generally the date the gift is considered complete for federal tax purposes, which may differ depending on how the securities are transferred and when control passes to the charitable organization. Because of these nuances, it is wise to coordinate closely with the Community Foundation whenever timing is critical, such as at year-end.
Fortunately, the Community Foundation for Western Iowa works with gifts of appreciated securities every day and can help facilitate smooth transfers. Especially as the fall planning season approaches, donors often focus on maximizing charitable deductions while avoiding capital gains tax on appreciated investments.
Our team is available to work in tandem with you and your financial planner to answer questions and make sure your year-end charitable giving meets the goals you'd like to achieve. Please contact us for any questions or assistance. We are honored to be your philanthropic partner as you Give Where We Live!
Disclaimer: The information provided in this article is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Community Foundation for Western Iowa does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Please consult an attorney or tax advisor regarding your specific circumstances.
