Four tax-smart giving strategies

Help your clients make the most of their year-end charitable gifts.

Despite a volatile market and soaring inflation, donors are committed to supporting the causes and organizations that are important to them. As an advisor, you can help your clients maximize their giving with tax-smart strategies that can also make a significant charitable impact.

Here are four strategies that can help your clients reach their year-end charitable giving goals:

  1. Make a qualified charitable distribution (charitable IRA rollover):

If your client is facing a required minimum distribution (RMD) in 2023 but doesn’t need the income, consider making a qualified charitable distribution directly from the IRA custodian to the charity of their choice. This strategy lets them avoid taxation on the withdrawal while still meeting their RMD requirements. The maximum amount is $100,000 and the client must be at least 70 ½ years old.

  1. Fund a charitable remainder trust (CRT) or a donor-advised fund (DAF) with appreciated real estate or a closely held business:

This year has seen a lot of turmoil in the market, especially with record inflation. However, not all investments have declined, in fact, some are still at record levels. Real estate and closely held business interests are some of the most popular assets for charitable giving over the past several years and still show significant appreciation. Additionally, many individuals still have appreciated securities whether from an inheritance or years of growth that have not yet been eroded by the market.

A charitable giving strategy may be a great solution to minimize your client’s tax burden from these appreciated assets. A CRT is ideal for clients who want to avoid the capital gains tax, get a charitable deduction, and receive an income stream for the rest of their lives. If income is not needed, a DAF could be a great answer to avoid the capital gains tax, get a charitable deduction, and then grant the funds out to their favorite charities over time.

  1. Use the bunching strategy for a higher tax deduction:

Is your client having trouble getting beyond the standard deduction? Try the bunching strategy to create a more significant tax deduction. Clients who give to charity on a regular basis can benefit from giving the next two to three years of their annual charitable donations in 2023. This allows them to take advantage of their charitable deduction by exceeding the standard deduction.

Because DAFs are simple and low-cost, they work well with the bunching strategy. Clients with larger donations may be good candidates for a grantor charitable lead trust which provides an upfront charitable deduction, pays annual distributions to the charities of their choice, and at the end of the term, all assets are returned to the client.

  1. Avoid the year-end rush with a DAF:

The end of the year sneaks up on all of us and many clients realize they need a charitable deduction at the last minute. This can create a stressful scenario that forces clients to rush and find the best charities to support. Instead of making a rushed decision, simply fund a DAF to get the charitable deduction and figure out later which charities to support.

Have questions or want more information about charitable giving? Please reach out to us. We know planned giving is complex, but our team of charitable giving experts is happy to set up a time to talk through the details with you.

Is a donor-advised fund the right choice for your client?​

Get the answers to the most frequently asked questions about donor-advised funds in our free eBook — 12 Questions to Ask Before Setting Up a Donor-Advised Fund.