Watch any luxury car commercial in December and you’ll hear about the “season for giving.” While gifting a brand-new Mercedes is an exciting prospect to some, many view this time of year as an opportunity to gift to their preferred charities.

As such, we wanted to get in the holiday giving spirit and put together a quick charitable giving reference guide for investors.

Why Gift?

Tax Benefits

The government allows for a portion of charitable contributions to be deducted from one’s taxes. According to the IRS, the tax deduction for gifts to public charities (including Donor Advised Funds – DAFs) are 30% of Adjusted Gross Income (AGI) for non-cash assets held more than one year, and 60% AGI for cash contributions.

Family Involvement

Gifting is a fun and simple way for families to come together and decide their giving strategy. According to the 2022 Charitable Giving Study by BNY Mellon, 44% of those who made gifts made their decisions with their family members.

Leaving a Legacy

Involving your children will not only allow you to better understand what is important to one another, but also create a family legacy that values charitable giving that can be passed onto future generations.

Here are a handful of questions to start the conversation with your family:

• What is the history of philanthropy in our family?
• Why is philanthropy important to us?
• What is our motivation for giving?
• Which causes/charities are most important to each of us, and why?
• Do we want to support many or few charities, large or small ones?
• Which past donations have given us the greatest satisfaction or regret?

How can I gift?

Direct gifting is the most well-known, and simplest, form. An individual can write a check directly from their bank or brokerage account to a charitable organization of their choosing.

For those who seek to be more involved or strategic, there are two other vehicles to consider: Donor Advised Funds (DAFs) and private foundations.

DAFs and foundations share similar characteristics but differ greatly in terms of how they are established and maintained. The graphic below outlines the difference between the two options.

DAFs are a simple and cost-effective way of creating a philanthropic plan, while Foundations are more intricate and sophisticated.

What can I gift?

More ways than you may think! A quick list includes: cash, securities (stock, bond, ETF, mutual fund), preferred stock, personal property, business sale proceeds, and even required minimum distributions.

Cash is unsurprisingly the most used form of gifting, but there is an alternative tax-smart way of gifting that not everyone considers: appreciated non-cash securities. The illustration below gives an example.

By selling appreciated stock and gifting the cash proceeds, you are required to pay taxes on the gain, which can erode your total charitable donation. Alternatively, gifting the appreciated stock in-kind to the charity allows the charity to receive the full benefit of the donation, while allowing the investor to avoid paying the capital gain tax on the security.
Gifting for Good
Whether you currently have a philanthropic plan or are interested in starting one, choosing the strategy that is right for you is what’s most important. Consulting with your financial and tax advisors in your decision making is a great way to ensure you philanthropic intent is maximized.

Sources:

• IRS Charitable Contribution Deductions, https://www.irs.gov/charities-non-profits/charitable-organizations/charitable- contribution-deductions
• Tax-Smart Philanthropy for 2022, https://www.schwabcharitable.org/maximize-your-impact/tax- strategies#:~:text=Annual%20income%20tax%20deduction%20limits,AGI%20for%20contributions%20of%20cash.
• Charitable Giving Study, BNY Mellon, 2022
• Private Foundations and Donor Advised Funds: A new CPA best practice, Susan M. Tillery CPA; https://www.thetaxadviser.com/issues/2020/mar/private-foundations-donor-advised-funds.html
• 20 Charitable Planning Questions Clients Can Ask Over the Holidays in 2022, Ken Nopar; https://www.aefonline.org/blog/20- charitable-planning-questions-clients-can-ask-over-holidays-2021