Joe Bantz, CFP®, AIF®

Over the years, Foster Group has done a lot of writing about using appreciated shares to enhance the tax benefits of your charitable giving. But this time I’m saying, “Don’t do it!”

Okay, actually, I’m saying, “There may be a better way.” On December 18, 2015, President Obama signed into law the PATH act, which made permanent a key charitable giving tax incentive. This can be an excellent tool for enhancing the tax benefits of making substantial gifts to your favorite charity.

The measure allows for those over 70½ to satisfy up to $100,000 of their Required Minimum Distribution (RMD) by giving it directly to a charity. When done as a charitable rollover, the amount given reduces your reported income, though you can’t also include it in your itemized deductions.

When should you consider using this strategy? It is most effective when you are taking required distributions from your IRA, but taking the standard deduction rather than itemizing. The charitable rollover approach reduces your income by the full amount of your gift, which can not only lower your tax bracket, but may even move you below thresholds where other tax benefits are phased out.

Consider a simplified example: suppose you are a single individual whose 2016 income will be $100,000, including $36,000 in Social Security benefits and $60,000 in IRA distributions, to satisfy your RMD. You also plan to do $25,000 of charitable giving.

Taking Charitable deduction Using Charitable Rollover
Adj gross income $90,600 $65,600
Deductions $30,000 $9,300 (Standard)
Exemptions $4,050 $4,050
Taxable Income $56,550 $52,250
Federal Tax Bracket 25% 25%
Estimated Tax due $9,933 $8,833

* This, of course, is a very simplified example to illustrate a situation when a charitable rollover may provide additional tax benefit. You’ll want to talk to your financial advisor, who will coordinate with your tax professional to determine the best strategy for you.

Ultimately, the charitable rollover gives you yet another option for executing your charitable giving goals. Talk with your financial advisor about your charitable giving goals. At Foster Group, we often find that our clients can accomplish even more charitable giving than they originally think, as we coordinate their giving with their long-term financial planning goals and values.  We’ll coordinate with your tax preparer to determine the most tax-efficient method for your giving, allowing you to accomplish more of what’s most important to you!

So don’t worry, call your financial advisor.

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