Charitable Giving Strategies

Question 1

How can Qualified Charitable Distributions from retirement accounts help charitably minded clients who take the Standard Deduction each year?

Answer 1

Unlike regular charitable contributions, which must be deducted on Schedule A, QCDs can be deducted without the need to itemize.

Question 2

Which of the following are advantages of using QCDs to make charitable contributions?

Answer 2

1. Unlike regular charitable contributions, which must be deducted on Schedule A, QCDs are an above the line deduction, which reduces AGI.

Reduced AGI can reduce IRMMA premiums, reduce exposure to the Medicare Net Investment Income tax, and reduce the effect of other AGI based phase outs.

2. Because QCDs are an above the line deduction, they can be used to deduct charitable donations without the need to itemize. This is useful for those take the Standard Deduction.

Question 3

T or F - QCDs can only made from RMDs, and therefore are only available to those who 70 1/2

Answer 3

True. You cannot make QCDs from retirement accounts before starting RMDs.

Question 4

Why did the Tax Cuts and Jobs Act make bunching charitable contributions more important for some clients?

Answer 4

The new higher Standard Deduction means that clients with few itemized deductions may not be to deduct charitable contributions. This can be partially overcome by bunching charitable contributions so that total contributions exceed the Standard Deduction.

Question 5

How can a DAF serve the strategy of bunching charitable contributions?

Answer 5

The DAF can be funded every second, third, or fourth year with a large charitable contribution that qualifies for itemized deduction. The money in the DAF can then be donated to charity on an annual, quarterly, or monthly basis.

Question 6

What two strategies can help charitably minded clients who use the Standard Deduction deduct their donations

Answer 6

1. QCDs

2. Bunching contributions (with or without using a DAF)

Question 7

Why is donating appreciated securities the most advantageous charitable strategy for reducing taxation?

Answer 7

It provides a double tax benefit:

It produces a dollar for dollar reduction in taxable income (up to 30% of AGI)

It removes an unrealized capital gains tax liability