Still reeling from the sting of your tax bill for 2015? Nothing can ruin a beautiful spring day like writing Internal Revenue Service in the “Pay to the Order of” section of a check. Perhaps you are an accountant or trusted advisor who had to deliver the exciting news to a client that they must make “additional contributions” to the government this year? Unfortunately, our time machine is still in development so we can’t go back to 2015 to right our wrongs, but moving forward, there is a way to turn potential compulsory contributions to Uncle Sam into charitable gifts for organizations you and your clients love.
Let’s look at Michael & Katelyn Connor’s story. Toward the end of 2015, the Connors’ accountant contacted them to review their 2015 income tax picture. With an adjusted gross income of $200,000, the Connors’ accountant estimated their income tax bill at $43,000 for the year. He advised they could significantly reduce this liability by making charitable contributions of $50,000. Although they liked this suggestion, with limited time to make a decision before year-end, Michael & Katelyn are unsure which charity (ies) they would benefit with such a significant gift.
The Connors’ financial advisor recommended they create a donor-advised fund (DAF). By creating a DAF and transferring $50,000 of securities that have doubled in value since they were purchased 10 years ago, the Connors were able to avoid $6,000 in capital gain tax on the sale of the securities. They also realized a $50,000 income tax deduction on the gift which saved them nearly $14,000 in taxes.
By establishing the Connor Family Fund, Michael and Katelyn were able to realize the tax savings immediately yet can delay recommending charitable grants from their account until future years. Michael & Katelyn also want to use their DAF to involve their children in the charitable decision making process. Over the years, Michael & Katelyn will continue to make gifts to their DAF and when they pass, their children will be the successor grant advisors to continue the Connor legacy of giving.
Taxes are inevitable but with solid planning, individuals can influence the final destination of a portion of their dollars through charitable giving.
Contact us to find answers to any of your other charitable planning questions.