A Message from our Treasurer on Special Strategies for Saving on Taxes When Making Charitable Donations
Like most of you, I want to give to nonprofit organizations (those entities with 501(c)(3) tax status, like charities and colleges); I also want to save on my taxes. With the new tax law that took effect in 2018, it is harder to do both at the same time. However, as Treasurer of the Give a Little Foundation, I would like to alert you to two tax strategies that may help you or someone you know achieve both goals in an optimal way.
The first special strategy is for seniors who have a retirement account—that is, someone at least 70½ years old as of 2020 and with a qualifying IRA.
BUT PLEASE DO NOT STOP READING JUST BECAUSE YOU ARE YOUNGER THAN 70½ OR DO NOT HAVE AN IRA, as you may well know someone who qualifies and who might want to know of this opportunity.
The strategy involves what is called a Qualified Charitable Distribution(or QCD), and here's how it works: As many of you may know, once you turn 70½, a minimum amount (a Required Minimum Distribution or RMD) must by law be distributed each year from your qualifying IRA(s) to you as income.
Normally, you would be required at the time of those distributions to pay federal and state income tax. However, if some or all of the distribution is earmarked as a charitable donation, you may transfer up to $100,000 to a charity or charities without paying federal or Oregon income tax on the amount you designate.(Please check with an advisor on how state taxes might be affected if you live outside Oregon.)
Significantly, the QCD is not restricted to your Required Minimum Distribution (RMD). You may supplement the amount of the MRD with additional funds from your IRA up to the above-mentioned $100,000 limit. (And your spouse, if meeting the age requirement, may give that much as well from his or her own distribution). This would be especially beneficial to you because you would be giving money that was not previously taxed when it went into your IRA and would not be taxed when coming out of it.
That is the basic idea, but here is a little more you would need to know:
The transfer of money must be made directly from your account custodian (your bank, mutual fund company, brokerage house, or money management firm) to the charity; it cannot be distributed to you, stashed for a while in an account or a mattress, and then later (even one day later) moved to a 501(c)(3) recipient. 401(k) plans do not qualify for this strategy; a Roth-IRA is more complicated, so if you have one of these, please contact your tax advisor.
Please note that the strategy described works only for qualifying IRAs that are no longer active, that no longer receive contributions. So if you are putting money into an IRA during 2020 or a subsequent year, you cannot use this special opportunity to benefit charities and save on taxes at the same time.
Some charities/nonprofits, even with 501(c)(3) status, are not eligible for the QCD, in particular private foundations (which are typically funded not by public contributions, but by one person or family) and donor-advised funds. (Again, please check with an advisor.)
Here's another strategy for those of any age who own investments: One gains another advantage by giving appreciated investments, such as stock shares, bonds, or money market funds, to charity. This kind of contribution allows donors to deduct the investments' full market value (subject to certain limits) without having to pay capital gains tax on the appreciation.
The mechanics of making a Qualified Charitable Distribution or a donation of investments can be determined by asking for assistance from the custodian of the money to be donated—this is a routine request, and employees in question are versed in giving this kind of help.
For purposes of one's tax return, an acknowledgement must be provided by a recipient of either of these kinds of donations, just as would be the case if a charitable contribution were made by check, credit card, or some other way.
Please Note: This announcement is for informational purposes only; we are not tax accountants, so please seek the advice of a professional you trust for advice about the ways to donate to nonprofit organizations in the most advantageous way. The Give a Little Foundation has a financial advisor who owns an investment consulting firm and who, if needed, will be happy to answer any questions you have: just call 503-565-2100 and ask for Scott Chambers or one of his associates.
Whether you give to our nonprofit or other ones, we hope that this information is useful to you or to someone you know.
Phil Pirages, Treasurer For the Give a Little Community