Tax Strategies: Gifting / Charitable Donations

Gifting / Charitable Donations

1. Super-funding 529s: Lump 5 years worth of 529 contributions into one year without triggering gift tax, and giving your assets more time to grow tax-free. Often used by grandparents to gift.
   
   External Guide: https://www.whitecoatinvestor.com/529-superfunding/

2. Take Qualified Charitable Distributions from IRAs: To avoid income tax and excise tax on the Required Minimum Distributions (RMDs) from your IRA which you have to take when hit 70.5 years old, take out a Qualified Charitable Distribution instead and give that money to charity and avoid taxes along the way.
   
   External Guide: https://www.thebalance.com/qualified-charitable-distributions-3192883#toc-the-rules-are-different-for-roth-iras

3. Use a charitable lead trust: A charitable lead trust pays an income stream out to a qualified charitable organization for a set period of time, and when that term is up, distributes the assets to the grantor’s heirs. The tax perk is receiving a deduction for the present value of the income stream donated to charity, and avoiding gift/estate tax for transferring assets.
   
   External Guide: https://www.nerdwallet.com/article/investing/charitable-giving
   Video Guide: https://www.youtube.com/watch?v=g6LOmtzdquA

4. Use a charitable remainder trust: A charitable remainder trust allows someone to transform their highly appreciated assets into an income stream that avoids capital gains tax and lessens estate tax. Upon the end of the term of the trust or when the grantor dies, the remaining money goes to charities selected by the grantor.
   
   External Guide: https://www.nerdwallet.com/article/investing/charitable-giving
   Video Guide: https://www.youtube.com/watch?v=g6LOmtzdquA

5. Gifting appreciated stock vs. cash: Gifting appreciated stock (vs. cash) to charities and/or heirs from your brokerage account gets both you and the other party out of paying capital gains taxes, and you also get a Schedule A deduction for the entire value of the shares.
   
   External Guide: https://www.nerdwallet.com/article/investing/gifting-stocks

6. Donor Advised Fund: Use a donor-advised fund (DAF) to "stack" future charitable contributions into one tax year, and then receive an immediate deduction against ordinary income when itemizing. You can then direct donations from the DAF to your desired charities in future years when you claim the standard deduction, leading to huge tax savings overall.
   
   External Guide: https://www.kiplinger.com/article/taxes/t054-c001-s003-how-to-set-up-a-donor-advised-fund.html

7. Open a Roth IRA for a child: As long as your child has earned income, you can open up a Roth IRA account for them and fund it accordingly, so their money can grow tax-free!
   
   External Guide: https://www.nerdwallet.com/article/investing/why-your-kid-needs-a-roth-ira

Other Tax Strategy Guides:

Tax Efficient Portfolio Management
Income Tax
Homeowner / Real Estate
Self-Employed / Business Owner
Estate Tax

Ready to implement these strategies, but don’t know how to execute the plan? 

Check out our blog post on finding the best tax providers here.

We are often asked for recommendations for tax preparation (actually doing the forms) to complement the work we do with families on tax strategizing (planning in advance to lower future tax bills.) We were frustrated that no "Yelp" existed for accountants/CPAs/tax preparers, despite the fact that wealth advisors so often traded recommendations amongst themselves!  So we put together this list based on recommendations from various advisors. Check it out here.

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