Being Smart about Doing Good

As the holiday season approaches, our mailboxes are filled with ad campaigns, catalogs, and appeals from charitable causes of every stripe. As the saying goes, ‘tis the season for giving, and there are many worthy causes working to create positive change in the world through our generosity.

Even if you regularly give throughout the year, as we move into December and year-end giving, you may not know that you could be missing out on an important provision of the tax code while making an impact through your investments. This is especially true in a year like we have had in the stock market. Rather than making outright cash donations, giving away appreciated assets can be more advantageous. When you give away a stock or other security with a long-term gain, you get to deduct the full fair market value of the asset, potentially eliminating capital gains tax from the sale of the asset. By donating an asset, the charity receives the full value, you get the deduction, and the capital gains tax on that security’s appreciation goes away, forever.

There’s another secret to wise giving: a donor-advised fund. These are accounts that help you to time your deduction for maximum tax benefit. They can even be used to turn your sporadic acts of giving into a philanthropic legacy. These are especially attractive if you expect your tax rate to be lower in the future than it is this year. You get a tax deduction for the gift in the year that the funds are transferred into the account, even if the funds remain invested and are actually given to your favorite charity sometime in the future.

You may contribute appreciated securities, stocks, or non-liquid appreciated private assets, and real estate to a donor-advised fund. Just as the name implies, you decide which charities ultimately receive the contributions, and in what amount. Grants paid out to selected charities can be deferred, while contributions or transfers of assets made into your charitable account can continue to grow as the balance is invested or re-invested over time.

These two tools can be combined. Donate an appreciated stock to a donor-advised fund. It is important to establish a strategy to structure your assets and plan your contributions and giving to help ensure you and your chosen charities are getting the most benefit. You may even be able to pass on your passion for giving to the next generation through a family legacy account, or incorporate the use of donor-advised funds into your estate planning strategy, leaving a legacy that continues to make an impact beyond your lifetime. Some parents set up these accounts to teach philanthropy to their children and grandchildren.

There is still time to make a year-end contribution, but you need to act soon as the processing deadline is rapidly approaching. It is important to keep in mind that different assets may take longer to process than others, and so may have earlier deadlines. If you are interested in setting up a donor-advised fund and would like more information, contact one of our advisors to discuss your options.

Important IRA reminders

I have had a column published in all 107 issues of MD-UPDATE, a magazine that goes to physicians throughout Kentucky.  This month’s column is “Remember the IRA” and contains tips on effective tax management for your IRA.  This should be of particular interest if you have ever made a non-deductible contribution to your IRA or if you make charitable contributions and have an IRA.  Click here for the article. 

Scroll down here and leave a question or comment.  I’m always happy to hear from readers.


10 Questions to ask your CPA

Documents such as 1099s, and W2s will soon be arriving in our mailboxes and tax preparation will get underway. Here are some questions you might want to ask your tax preparer as you meet with him or her:

  1. What changes in the tax law have been enacted during 2016 that will apply to my situation and affect my tax liability?
  2. How do changes in my family makeup change my tax situation?  Of course births, adoptions, deaths, marriages, separations, and divorces can all have an impact. You should also consider the importance of you or one of your dependents reaching a certain age-milestone. Some key ages to consider are: 18, 19, 24, 26, 59 1/2, 65, and 70 1/2. If anybody in your family passed one of these milestones, be sure to bring it up and ask whether it impacts you this year.
  3. How will a major purchase, such as a car or additional residence, affect my taxes?
  4. Do I have any remaining loss carryforwards from last year that I might take this year? Net operating losses, capital losses and charitable contribution carryforwards can be significant and important to reducing taxes this year.  Typically, preparers will keep track of the carryforwards for you, but it is still worth asking this question, especially if you have a different preparer this year.
  5. Am I eligible for ROTH conversion this year–and is it recommended?  A ROTH conversion allows you to convert a traditional IRA to a Roth and avoid future taxes and required minimum distributions. The ability to do a conversion is dependent on income.  Advisability is another question. The drawback is that all the taxes have to be paid in the year of conversion.
  6. Should I increase my retirement plan contributions?  In many cases, final contributions are allowed to be made up until the time of filing the tax return or its due date.  Don’t forget the catch-up provisions for those age 50 or older.
  7. Am I eligible to setup and make contributions to a SEP, SIMPLE, or solo 401(k)?  These retirement plans generally allow for larger contributions than a traditional IRA.
  8. Do you have any recommendations for reducing my taxes this coming year?
  9. Should I change my tax withholding and/or estimated payments for the current year?  If you owe taxes, most professionals will recommend that you increase your withholding to a level that will preclude a penalty for next year. Usually that is 100% or 110% of last years actual tax bill. However, if your income is expected to drop, some preparers are reluctant to advise that you withhold or pay in less than last year for fear that doing so would cause a penalty.  If you expect changes in income, up or down, those changes should be discussed with your preparer and appropriate adjustments be made.
  10. How can I authorize you to discuss my tax return with my financial advisor?  Conversation and open information sharing between tax practitioners and investment advisors can assist in minimizing your tax burden. Written authorization is now required to enable tax preparers to disclose any information about your tax return with other parties, including your financial advisor.  Obtaining that authorization while the return is being prepared will eliminate having to go back and do it later.


January 3, 2017