The Giving Season

Bill Parrott |

November is the beginning of the giving season. From now until the end of the year, charities and non-profits will receive much-needed dollars to help fund their mission. For several organizations, the money they receive in the next few weeks will subsidize most of their annual budget. Individuals typically wait until the end of the year before they give because they don’t have a giving or philanthropic plan.

For where your treasure is, there your heart will be also. ~ Matthew 6:21.

During my financial planning meetings, I ask people if they have a charitable giving strategy or if they donate money regularly; thankfully, most people are generous. I once worked with an individual who didn’t believe in giving money away while he was living. He was going to donate his money at his death through his estate. He was missing an opportunity to see his gifts bear fruit.  I didn’t tell him that people who don’t give today won’t give tomorrow. 

Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. ~ 2 Corinthians 9:7.

Most individuals don’t have a coordinated giving plan, and as a result, they wait until the last minute to make donations. Without a strategy, you may be missing valuable deductions, so here are a few ideas to help you with your charitable contributions.

Appreciated Securities.  The stock market has done well, so you probably have stocks with unrealized capital gains. When you donate appreciated securities to a charity, you get the deduction, avoid a capital gains tax, and your charity receives the money. Let’s say you purchased YETI Holdings in January at $14.84, and today it’s selling for $31.90 for an unrealized gain of $17.06 or 115%. You can gift your shares directly to your charity and avoid paying taxes on the appreciation. The charity will sell the shares on the open market to receive the cash, and they, too, will avoid a capital gains tax. You must donate your securities to a 501c3 organization to receive a deduction

Qualified Charitable Distribution.  The IRS allows you to satisfy your required minimum distribution by giving your money directly to a charity from your IRA. It’s called a qualified charitable distribution (QCD), and you’re allowed to donate up to $100,000 per year. The QCD will enable you to avoid paying taxes on the distribution, and it will satisfy your required minimum distribution.

Donor-Advised Fund (DAF). A Donor Advised Fund allows you to transfer appreciated shares to the fund. Once inside the DAF, you can sell your shares and purchase new investments without realizing a capital gain. You can deduct the contribution from your taxes, and it occurs in the year of your gift, not in the year of distribution. You don’t have to distribute the proceeds immediately, so if you’re not sure which charities to support, you can defer the payment until you identify the organizations. For example,  you can transfer $100,000 worth of ABC Inc. stock to your Donor Advised Fund, sell it, reinvest the proceeds, and then send a portion of the funds to your favorite charity. The funds that remain inside your DAF will grow tax-free. 

Charitable Remainder Trust (CRT). This trust allows you to transfer your shares to a Charitable Remainder Trust, sell your holdings, diversify your assets, and receive income from the proceeds. At your death, your charity will receive the remainder of the trust assets. The stock, once transferred, can be sold free of taxation and the proceeds reinvested into a diversified portfolio of stocks, bonds or funds. Your contribution to the trust qualifies for a charitable deduction. The amount of income you can receive from the trust is between 5% and 8% of the portfolio value. You will pay ordinary income tax on the income you receive.

Cash.  Cash is king, and it’s easy to give away. The IRS allows you to give away $15,000 per person per year without having to pay taxes. However, you won’t receive a tax deduction, but you’ll be able to help the next generation. For example, if you have four children and ten grandchildren, you can give away $210,000 this year. You can also give $15,000 to friends and strangers if you want.

The end of the year is a great time to give money to those in need, and it’s always the right time to help others.  However, an annual charitable giving strategy may be beneficial to your long-term planning and budgeting needs.  A philanthropic plan can pay huge dividends to you and those you support. 

Do not withhold good from those to whom it is due, when it is in your power to do it. ~ Proverbs 3:37.

November 5, 2019

Bill Parrott, CFP®, CKA®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.