November 15, 2022 Year-End Giving

The end of the year is quickly approaching, which means it is a great time to think about your end of year tasks, including charitable giving. There are a number of strategies that can be employed to help you accomplish your charitable giving goals while also ensuring you are giving in a strategic, tax-efficient manner. Here are a few strategies to consider as you think about your year-end giving:

1. If you are taking an RMD, consider a QCD.If you are at least age 72 and have an IRA, you can transfer up to $100,000 per year directly from your IRA to a charity by making a qualified charitable distribution (QCD).  In doing this, funds are withdrawn from your IRA without any tax consequences and the act can be used to satisfy your required minimum distribution (RMD) requirement.QCDs are not treated as a charitable deduction.  Therefore, you do not have to itemize your deductions for this strategy to be effective. Further, charitable contributions given as a QCD are not counted toward your charitable giving limits, which is, in general, 60% of your adjusted gross income (AGI) for 2022.
2. Consider gifts of long-term appreciated securities.Gifting long-term appreciated securities has become increasingly popular in recent years, and for good reason.Most publicly traded securities may be donated to a public charity if the charity has an investment account to receive the securities.  When making this type of donation, you can claim the fair market value as an itemized deduction on your federal income tax return, up to 30% of your AGI.  In doing this, you avoid paying capital gains tax on the appreciation.This strategy may be particularly beneficial for those holding securities that have a very low basis, or no known basis. This method can also be beneficial if your portfolio includes “overweight positions” (positions that comprise a high percentage of your overall portfolio).  Gifting shares of these overweight positions can help satisfy your philanthropic goals as well as the common goal to diversify your portfolio, all while managing the impact on your capital gains tax.
3. Consider a bunching strategy.The 2017 tax laws increased the standard deduction and capped certain itemized deductions.  As a result of those tax law changes, many tax filers no longer itemize their deductions.However, if you’re considering itemizing, a “bunching” strategy may be helpful. Under this strategy, donations are concentrated in a single year with the goal of increasing the value of all deductions beyond the standard deduction threshold. Then, in the 1-2 years that follow, smaller dollar donations are made, and the larger standard deduction is used. Keep in mind that there are charitable giving limits.
4. Consider offsetting the cost of a Roth conversion with charitable giving.In a year like 2022 where market volatility is at play, it can be advantageous for certain individuals to convert some or all of their pre-tax retirement portfolio (Traditional IRA or 401(k)) to an after-tax Roth IRA portfolio while the value of the portfolio is temporarily discounted (i.e., undergo a Roth conversion). Roth conversions do, however, come at a cost, as the amount converted is treated as income in the year in which the conversion occurs. Charitable contributions can help to partially offset the cost of a Roth conversion.
5. Consider establishing a donor-advised fund.A donor-advised fund (DAF) is a giving vehicle sponsored by a public charity. Donors can contribute to the charity as frequently as they would like and claim the donation as an itemized deduction in that tax year.  The donor then may recommend grants from the fund over time.  This method allows donors to make a gift and qualify for a charitable
   deduction immediately without needing to decide right away on the charities to support. Once funds are donated to a DAF, they can be invested and afforded the opportunity to grow tax-free.

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Of course, charitable giving by simply mailing a check is always an option and can be particularly useful for any last-minute gifts. As long as the envelope is in the mail on or before December 31, 2022, the gift is considered to have been given in 2022.

As always, we are here to help as you consider which charitable giving strategies would work best for your unique situation.

Means Wealth Management is a SEC registered investment adviser. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. The information in this material is for educational purposes only, is not intended to predict or guarantee future market performance and is not intended to act as individualized tax, legal, financial or investment advice. Please consult a qualified attorney or tax professional for individualized legal or tax advice. Please contact a financial advisor for specific information regarding your individualized financial and investment planning needs.