Five Considerations to Maximize Your Charitable Benefits in 2023

Local Philanthropic Voices: Randi Grassgreen, advisor to high-net-worth entrepreneurs and families on wealth transfer, trust and estate, and tax planning matters.

Having worked with donors in Boulder County for the last 25 years, I’d love to share some of my best ideas for how to make a positive impact in the community while mitigating your tax liability. I encourage my clients to have conversations about this year-round, and I hope you will do the same with your advisors. Here are the topics I would suggest that you discuss:

Five Considerations for 2023:

1. Consider a Bunching Strategy.

To maximize potential itemized tax deductions, consider "bunching." This means bundling or bunching deductions in a single year, and then skipping one or even several years of donations. This works well when your total itemized deductions for a single year may fall below the increased standard deduction. If you pair this strategy with a Donor-Advised Fund (DAF), you can create a ready reserve to support charities over time. Think of a DAF as a philanthropic checking account, that allows you simplify your life, your taxes, and maximize your impact.

2. Gifts of Appreciated Stock are a Year-Round Consideration.

Chances are good that not all of your holdings had an unusually down year. Gifts of appreciated stock (this includes mutual funds, ETFs) to nonprofits, including a DAF at the Community Foundation, is still one of the most tax-savvy ways to support your favorite charitable pursuits. By gifting appreciated securities, you’ll receive a charitable deduction equal to the fair market value while avoiding capital gains taxes you’d otherwise owe from selling.

3. Think ahead! The “anticipatory assignment of income” is catching some donors off guard, preventing them from fully leveraging charitable benefits.

If a donor begins the process of selling appreciated property that is already under contract or is subject to a memorandum of understanding, and then donates the property to a charity, the IRS will treat the transaction as though they first sold the property and then made a cash contribution to the charity. This results in a lower tax benefit, since the capital gain will be taxed after all. Appreciated assets, including real estate, are great ways to fund a DAF, but the trick is to plan ahead, and consult your legal advisors closely. The good news is that gifts of publicly traded securities (as mentioned above) is exempt from this IRS rule.

4. Don’t forget about your retirement assets!

When an individual family member and/or loved one inherits your traditional (non-Roth) IRAs and similar, the distribution they receive is taxable income to them. A charitable organization, including a DAF, will not pay income taxes on retirement assets received. So, a very tax efficient strategy is to name a charitable organization as the beneficiary (partial or full) of your retirement account(s).

While I’m mentioning retirement plans, also be aware there were recently enacted advantageous tax laws governing retirement accounts during life. Under the new law, the required minimum distribution (RMD) age increased to 73 (from 72) beginning January 1, 2023.

RMDs are the IRS-mandated distributions from qualified retirement plans. The RMD age will further increase to age 75 on January 1, 2033. This may mean more dollars available for charitable giving at death. Note that the age for Qualified Charitable Distribution (QCD) eligibility remained at age 70½, and, still, Donor-Advised funds are not eligible recipients of a QCD.

5. Simplify from a Family Foundation to a Donor-Advised Fund. Running a private family foundation has become increasingly complicated.

With ever-changing tax rules and scrutiny of investments and distributions, as well as often complicated family dynamics, many are choosing to transition their granting foundation into a DAF. This allows you to outsource all the back-office work and reduce the expenses associated with IRS compliance.

Of course, everyone’s situation is unique, so please do talk with your advisors about what is best for you. The Community Foundation Boulder County is also a knowledgeable resource, where I have personally referred clients over the years, and they’ve been very pleased with the results.

Happy giving!