The Gift that Keeps Giving – Year-End Charitable Gifting

December 4, 2018

Hard working, well compensated, and generous are words we use to describe our insurance producer clients.  These characteristics all lead to year-end tax planning opportunities around charitable giving.

We recently completed year-end tax planning for an insurance producer (we will call him Mike) who works for a publicly traded agency. Mike and his wife Mary are extremely generous with their wealth. We were able to incorporate the following three gifting strategies into their plan:

Bunching

One advantage to charitable giving is the tax deductibility of your donation.  In 2018, the tax law changed to:

  • Limit the deductibility for real estate and state taxes, when combined, to $10,000 per return.
  • Miscellaneous deductions subject to the 2% AGI floor have been eliminated.
  • The standard deduction was doubled to $12,000 for single filers and $24,000 for married couples filing jointly.

Therefore, many taxpayers who were itemizing deductions under old law will now take the standard deduction in 2018.

Fortunately, for those charitably inclined, gifting to a qualified organization remains a deduction for those who still itemize on their tax return. With the tax law changes it is not as advantageous for Mike and Mary to itemize their deductions every year. For them it will make sense to “bunch” multiple years’ worth of gifting into one year.

  • In 2018, they plan on making three years’ worth of donations in December to the Red Cross and their local Church.
  • In the year they gift, they will itemize their deductions to maximize tax savings.
  • In following years, they will take the increased standard deduction.

Bottom line: bunching multiple years of gifting into one year will provide them significant tax savings over time.

Donor Advised Fund

Mike liked the idea of bunching multiple years of donations into one year for the tax benefit but was concerned that if he donated three years of donations all in December that the organizations Mary and he supported would expect the same amount in future years. They didn’t want their Church to be disappointed when they did not receive a donation in future years.

This issue is solved by using a Donor Advised Fund. With a Donor Advised Fund you contribute money to the fund today and get the tax deduction in the year contributed to the fund. The proceeds are then invested similar to a regular brokerage account, but the money does not have to be issued to the charitable organization all at once. This will allow Mike and Mary to get the deduction for taxes this year and make charitable contributions over time out of the Donor Advised Fund. Additionally, the funds can be invested to earn more money for future giving.

Gifting Low Basis Stock

Mike has worked for a publicly traded insurance company for over fifteen years. During that time, he has accumulated a significant amount of stock in the company. The stock has appreciated significantly, and every time Mike looks to diversify out of his company stock, he is faced with a large tax bill. Thus, we recommend Mike gift his low basis company stock to the donor advised fund (or to the charity directly) rather than gifting cash. By gifting the stock directly, Mike will avoid the capital gains tax while still getting the charitable deduction. This is truly a win-win gift!

Give often, give generously, and give yourself the gift of tax savings. Happy Holidays!

See Disclosure

BDF’s Commercial Insurance Practice Group understands equity compensation and the valuation of business and uses this knowledge to help insurance professionals develop financial plans while minimizing tax bills. Whether working with a producer or business owner, we focus on one’s individual goals, family involvement and living a full life.

Jim King, CPA, CFP® is an owner and wealth manager at BDF where he leads the Commercial Insurance Professionals Practice Group. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. His focus on creating financial blueprints for his clients has earned him recognition as a “Five Star Wealth Manager” by Chicago Magazine.