2021 was another year mired in the depths of a global pandemic. Times were challenging for nearly all business sectors, secular and sacred. Despite these difficulties, God is on the move in the hearts and wallets of donors around the world. Historic levels of generosity have been provided from individuals giving to support the most vulnerable, the most impacted, the most in need. As we come to the close of 2021, there are three key ways donors can increase the power of their giving at a time when the global faith community needs us most.
1. Give recurring grants for unrestricted use.
One the greatest impacts a donor can give to their charity of choice is to recommend recurring grants for unrestricted use. Most not-for-profits are disproportionately dependent on large, one-time gifts. In this case, the loss of a large donor can be crippling to the charity’s efforts. Predictable and steady streams of revenue create a diversified and stable finance base to allow charities to plan and effectively deliver services.
When donors recommend unrestricted grants (i.e., grants without specifying or designating a purpose for which the funds must be used), they allow the charity much greater flexibility in fulfilling their mission and staying financially viable, especially during difficult times.
2. Donate appreciated non-cash assets.
If you have a non-cash asset that has been held for more than one year, you can donate the appreciated asset to your favorite charity through a Donor Advised Fund (“DAF”) such as The Signatry. Qualified non-cash assets come in various forms such as publicly traded securities, restricted stock, and private business interests. The benefits to this type of donation flow to both the donor and recipient. For the donor, they can generally eliminate capital gains tax that would accrue if the asset was first sold and then the proceeds donated. For the charity this can potentially increase the amount available by up to 20%.
For illustrative purposes, take the following example:
John owns ABC stock with an original cost basis of $5,000 and a current fair market value of $50,000. Federal long-term capital gains tax rate is 15%.
| Option 1 Sell ABC stock & donate after-tax net | Option 2 Contribute ABC stock to DAF | Difference |
Long-term capital gains tax paid | $6,750 | $0 | |
Charitable deduction & tax deduction | $43,250 | $50,000 | $6,750 (additional to charity) |
Tax savings | $3,630 | $12,000 | $8,370 (tax savings) |
*To be clear, this is purely a hypothetical example. It does not account for state or local tax, nor does it consider the Medicare net investment income surtax. The savings to the donor is simply the tax deduction, multiplied by the income tax rate of the donor (24% was used here), and then deducting the long-term capital gains taxes paid.
3. Increase your giving by donating retirement assets.
If you’re considering retirement soon or already there, here are a few tax-savvy ways to maximize your charitable giving:
a. Make a Qualified Charitable Deduction (QCD) of Individual Retirement Account (IRA) assets.
Individuals age of 70 ½ and older can give up to $100,000 per year tax-free from an IRA through a QCD. While this may seem counterintuitive to reduce your IRA balance, a QCD may actually lower the taxable income for the donor in the future, reduce estate taxes once the donor passes, and limit the tax liability beneficiaries may incur on the IRA. Be sure to initiate QCD requests in early December at the latest though so allow adequate processing time before year-end.
b. Use a charitable deduction to offset the tax liability of withdrawals from a retirement account.
Similar to the above QCD recommendation, individuals over the age of 59 ½ (avoids the early withdrawal penalty) who are itemizing deductions for 2021 can potentially reduce the taxable estate or tax liability for beneficiaries through this method.
c. Consider converting retirement accounts to Roth IRAs.
Donors who have tax-deferred retirement accounts, like traditional IRAs, and who itemize deductions can use the charitable deduction to offset the tax liability on amounts converted to a Roth IRA. Roth IRAs offer tax-free growth, tax-free withdrawals (potentially) if the holding period and age requirements are met, no tax liability for beneficiaries (depending on timing), and have no annual required minimum distribution.
So…what next?
Give. Give generously. Give joyfully. Whether you employ any of these strategies above or are simply looking to give a small one-time gift, every contribution makes a tremendous impact for the Kingdom. And ultimately, every asset we have is simply being held in trust for that purpose…advance the Gospel, serve the poor and needy, and glorify the Lord.