It’s that time of year: Considering your year-end charitable gift options

By year’s end, many of us look to combine our desire to do good with our desire to save. And guess what? According to the Jewish Alliance philanthropy team, there are easy ways to do both:

Give appreciated stocks

While giving in the form of cash or check is the most common way to give charitably, they are not generally the most tax efficient. Contributing stocks, bonds or mutual funds that have appreciated over time has become increasingly popular in recent years and for good reasons. Why?

Most publicly traded securities with unrealized long-term gains (meaning they were purchased over a year ago and have increased in value) may be donated to a public charity, and the donor may claim the fair market value as an itemized deduction on the federal tax return — up to 30 percent of the donor’s adjusted gross income (should you donate more than you can deduct in one year, there is a 5-year carry-forward available).

Other types of securities,  such as restricted or privately traded securities and donations to non-public charities,  may also be deductible though additional requirements and limitations may apply. No capital gains taxes are owed because the securities are donated, not sold. The greater the appreciation, the bigger your tax savings.

Establish a donor-advised fund

With charities that have donor-advised fund (DAF) programs, such as the Jewish Alliance’s Jewish Federation Foundation, you can make irrevocable contributions to the charity, which then establishes a DAF on your behalf. Establishing a donor-advised fund can be a particularly useful strategy at the end of the year because it allows you to make a gift and take the tax deduction immediately. Take your time when deciding where the dollars will go, however. It can be a great way to offset a year with unexpectedly high earnings or address the tax implications of year-end bonuses.

Use a charitable donation to offset tax costs of converting a traditional IRA to a Roth IRA.

Even with higher top income tax rates, many investors are considering converting from a traditional IRA to a Roth IRA.

The key difference between traditional retirement savings options (whether IRAs or workplace plans) and Roth versions is that with the former contributions are usually tax deductible in the year they are made and can grow tax deferred within the account; the contributions and earnings are then taxed at “the back end” (upon withdrawal). With a Roth, contributions are not tax deductible. They are included as income and subject to income taxes but withdrawals are tax free. Roth accounts make sense if your current tax rate is lower than the one in the years you’ll be making withdrawals.

Any time you convert a traditional retirement savings account into a Roth, you will owe taxes on any pretax monies converted. Depending on the amount converted and your tax rate, the taxes on the conversion can be significant. It’s generally unwise to pay these taxes out of the retirement account being converted, as doing so would reduce your retirement savings and the account’s growth potential. Converting in a year in which you can claim a large tax deduction, such as a charitable deduction, can be helpful in offsetting the conversion taxes.

Consider donating complex assets

Donors may also contribute complex assets such as private company stock, real estate or other personal property directly to a charitable organization.

These types of assets often have a relatively low cost basis. In cases where these assets have been held for at least a year, the outright sale of the asset would result in a large capital gains tax for the owner. If, however, the asset is donated directly to a charity and the charity then sells the asset, the original owner is often able to eliminate capital gains taxes while potentially receiving a charitable donation deduction as well.

Help available.

The Jewish Alliance’s Jewish Federation Foundation offers a variety of opportunities to make informed charitable contributions since tzedakah comes in many forms. From donor-advised funds to bequests and outright gifts, Alliance professionals can support you as you determine your end of year gifts and donations. Please consult your own financial adviser for specific decisions and further guidance.

For more information on your Jewish Alliance year-end giving options, please contact Trine Lustig, vice president of philanthropy, at 401-421-4111, ext. 223 or tlustig@jewishallianceri.org.