Investing with Faith / Andrea Hall

Now is the time to begin your end-of-year charitable planning

Once again, the season of generosity is approaching. In addition to considering gifts for your loved ones, you might want to think about charitable gifts before year’s end as well. But what should you know before making gifts to charities? And what impact might these gifts have on your financial and tax situation?

First, you may want to create a gift budget by deciding just how much you will give to charitable organizations during the rest of the year.

Next, look closely at the groups to whom you wish to contribute. You can find many reputable charities, but some others may be less worthy of your support.

One of the red flags of a questionable organization is the amount of money it spends on administrative costs versus the amount that goes to its stated purpose. You can check on the spending patterns of charitable groups—and find other valuable information about them—on the well-regarded Charity Navigator website at charitynavigator.org.

Once you’ve established a gift budget and are comfortable with the groups you choose to support, you might turn your thoughts to another key issue connected with charitable giving: tax benefits.

A few years ago, changes in the tax laws resulted in a large increase in the standard deduction, which meant that many taxpayers found it more favorable not to itemize—and lost the ability to take charitable deductions.

But if you still do itemize, your charitable gifts or contributions to tax-exempt groups—those that qualify as 501(c)(3) organizations—can generally be deducted, up to 60% of your adjusted gross income, although lower limits may apply, depending on the nature of your gift and the organization to which you’re contributing.

Other more long-term avenues also exist that combine end-of-year charitable giving with potential tax benefits. One such possibility is a donor-advised fund, which allows you to make an irrevocable charitable contribution and receive an immediate tax deduction. You can give cash, but if you donate appreciated assets such as stocks, your tax deduction would be the fair market value of the assets, up to 30% of your adjusted gross income. Plus, you would not incur the capital gains tax that would otherwise be due upon the sale of these assets. Once you establish a donor-advised fund, you have the flexibility to make charitable gifts over time, and you can contribute to the fund as often as you like.

Another possible tax benefit from making year-end charitable contributions could arrive when you start taking required minimum distributions, or RMDs, from some of your retirement accounts, such as your traditional IRA and 401(k). These RMDs could be sizable—and distributions are counted as taxable income.

But by taking what’s called a qualified charitable distribution (QCD), you can move money from a traditional or Roth IRA to a qualified charitable organization, possibly satisfying your RMD, which then may be excluded from your taxable income. You must start taking RMDs at age 73, but you can begin making QCDs of up to $105,000 per year as early as age 70½. (This amount will be indexed for inflation annually.)

Establishing a donor-advised fund and making qualified charitable distributions are significant moves, so you’ll need to consult with your tax advisor first. But if they’re appropriate for your situation, they may help you expand your ability to support the charitable groups whose work you admire for these final months of 2024 and beyond.
 

(This article was provided by Andrea Hall CFP® CKA®, a financial advisor with Edward Jones at 213 S. Chestnut St. in Seymour. Andrea is a member of St. Ambrose Parish and also serves on the archdiocese’s Catholic Community Foundation [CCF] Planned Giving Committee and Professional Advisor Group. Please consider including your favorite parish, school, archdiocesan ministry or any of their CCF endowments in your year-end charitable giving. CCF also offers Catholic donor advised funds for those interested. Please call 317-236-1482 or e-mail ccf@archindy.org with any questions.) †