How to Make the Most of Your Charitable Giving This December

December 19, 2016 4:50 pm Published by Ann K. Molloy

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With the end of the calendar year fast approaching, now is the time to make smart decisions about your charitable donations. Here are two ways to help your favorite charity while reducing your taxes:

Make a Qualified Charitable Distribution from Your IRA

If you are 70 ½ years or older, your IRA custodian or trustee can distribute up to $100,000 from your traditional or Roth IRA to the charity or charities of your choice. The funds you’re contributing cannot touch your hands—they must move directly from the IRA custodian or trustee to the charity. And the charity must be a public charity (i.e., a charity described in IRC §170(b)(1)(A)). A private foundation or a donor-advised fund won’t qualify.

A “qualified charitable distribution”—a charitable contribution that meets these requirements—will count toward your required minimum distribution from your traditional IRA. But, unlike a required minimum distribution that is paid to you, the amount of a qualified charitable distribution is not included in gross income. As a result, you receive a charitable contribution deduction for the full amount of your gift.

If, instead, you’d followed the traditional path—receiving a required minimum distribution and including it in gross income, then taking your charitable contribution as an itemized deduction on Schedule A—then the amount of your charitable contribution deduction would be limited to 50 percent of your Adjusted Gross Income (AGI). In other words, you would not be able to take full advantage of a $100,000 charitable gift in the year you made it unless your AGI was at least $200,000.

If you don’t itemize because you get more benefit from the standard deduction, a qualified charitable distribution effectively enables you to get the full benefit of a charitable contribution deduction at the same time.

Rebalance Your Investment Portfolio With a Gift of Appreciated Stock

If you own stock that has appreciated significantly over a period of years and is accounting for too large a proportion of your investments, you may need to rebalance your portfolio. One option, if you’re also considering charitable gifts, is to donate the stock. If the stock is publicly traded, you can deduct the full fair market value from your income, up to 50 percent of your AGI. This is a better alternative than selling the stock and then donating the sale proceeds to the charity, since you would still be liable for capital gains tax on the appreciated value. By donating some or all of the stock directly to the charity, you are actually making a more valuable gift.

If you’d like to use your appreciated stock to make a large charitable gift to offset a substantial portion of this year’s income, consider setting up a donor advised fund with a community foundation, a college or university, or a mutual fund company that has established a public charity. You will receive a charitable deduction for the year in which you make the stock donation, and the community foundation will sell the stock—without liability for the tax on capital gains—and invest the funds for you. Going forward, in each ensuing year you will choose the charities to which the money in your fund will be distributed. Although you cannot take a charitable deduction for those distributions in future years, you will have the annual satisfaction of knowing that you have given a gift that keeps on giving.


Attorney Ann K. Molloy counsels clients in all aspects of estate and gift tax planning, and specializes in asset protection planning, Medicaid planning, special needs trusts, and guardianship and conservatorship law.

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