Charitable and Family Gifting Methods

by | Nov 8, 2021 | Smart Financial Tips, Tax Planning

As we approach the end of the year, we are often reminded about the season of giving.  Whether it be gifting to charity or family, there are many strategies to consider.  A couple of our team members wrote informative pieces on this topic back in 2020.  This year, we will provide reminders and highlight important aspects and examples of giving and donating.

Methods of Charitable Giving

My colleague Shelby Miller outlined how to give in her 2020 blog, “‘Tis the Season for Charitable Giving.”  To expand on her piece, here are some examples.

Cash Gift Deduction

We start with a reminder that you can donate cash and deduct up to 100% of your adjusted gross income (AGI). [i] If cash donations exceed 100% of your AGI, you may carry forward the excess cash gifts for future deductions for up to five years.  This is a great benefit; however, there can be more tax-efficient ways to donate depending on your situation.

Appreciated Assets

Gifting appreciated assets can be a powerful tool for those holding assets with large unrealized taxable gains.  This can be very beneficial compared to donating cash:

  Donate Cash Sell Appreciated Securities – Donate Cash* Donate Appreciated Securities*
Fair Market Value of Gift $20,000 $20,000 $20,000
Income tax savings – 35% rate $7,000 $7,000 $7,000
Capital gains saved or (paid) – 20% rate N/A $(3,000) $3,000
Total Tax Savings $7,000 $4,000 $10,000
Net Cost of Gift $13,000 $16,000 $10,000

*Cost basis = $5,000

In this example, we can see that donating appreciated securities allows us to avoid paying capital gains tax on the securities while receiving the same charitable deduction as donating cash.  There is a net tax savings of $6,000 when comparing donating appreciated securities to selling the same securities first, then donating.[ii]

A very useful tool to employ for this method is the Donor Advised Fund (DAF), which is a charitable account where appreciated securities can be deposited.[iii]  The account tracks all the necessary tax information.  The charitable deductions are taken when the deposit is made into the account, but the donor can wait as long as desired to disburse the funds to charity – even years later (the tax benefit has already been realized).  It’s important to note that once the funds are deposited into the account, the donor no longer owns the assets, as a DAF is its own separate entity.

 Qualified Charitable Distribution (QCD)

Now that Required Minimum Distributions (RMDs) are mandated for those 72 and over, Qualified Charitable Distributions (QCDs) remain a great way to donate directly to a charity from an IRA.  This means someone can donate up to $100,000 of the RMD,[iv]  paying zero tax on what would have been a distribution taxed as ordinary income.

As an example, if the RMD is $100,000 and the account owner has intent to gift $10,000 to charity,  he/she can give  the $10,000 directly from the IRA.  This will directly reduce  the taxable income from the IRA to $90,000.  A major benefit of decreasing income this way is to potentially lower Medicare premiums, which are based on modified adjusted gross income (MAGI).

The QCD can be an impactful strategy for clients who are not itemizing charitable deductions or who find it challenging to annually itemize charitable deductions.  As shown in the example below, using a QCD will reduce MAGI, as well as taxable income.  If not using a QCD, income will be higher by virtue of the RMD received in cash.  You can see there is ultimately a tax savings by utilizing a $10,000 QCD over taking the full RMD amount and then gifting $10,000 in cash to charity.

  $10k Gift with IRA QCD $10k Gift with Cash
Total Income $   240,000 $     240,000
IRA QCD $   (10,000) $               –
Adjusted Gross Income (AGI) $   230,000 $     240,000
Cash donation $             – $       10,000
Property Taxes $     10,000 $       10,000
Total deductions $     10,000 $       20,000
Greater of Standard or Itemized Deduction
Standard Deduction $     14,250 $       14,250
Itemized Deduction $     10,000 $       20,000
Tax Calculation    
AGI $   230,000 $     240,000
Standard or Itemized Deduction [v] $    (14,250) $     (20,000)
Taxable Income $   215,750 $     220,000
Tax Liability [vi] $     50,057 $       51,544
Tax Savings using IRA QCD $       1,487  


Clients who plan to donate before the end of the year should reach out to their advisors to discuss potential strategies.

Year-end Planning for Family Gifting

As my colleague, Rachael Grattan, outlined in her blog, “Is 2020 the Year to Gift Big?”, the lifetime gift and estate exemption was doubled in 2018 from $5.6 million to $11.18 million (adjusted for inflation).  That was scheduled to sunset at the end of 2025 and revert back to the lower 2017 amount.  The recent American Families Plan Tax proposal reduces the estate tax exemption to $5.85 million (indexed for inflation), beginning on January 1, 2022. Be mindful that the current version of the proposed tax plan may not be the final form, but many features may become law.

This has become a growing concern for families with large estates.  We remind clients (who intend to pass down significant wealth) about the ability to gift assets completely tax-free on an annual basis.  Individuals are able to gift up to $15,000 per person without needing to file a gift tax return.  For example, a couple could gift a total of $30,000 ($15,000 each) to their child or a total of $60,000 to their child and spouse.  If the receiving couple has children, gifts can be made to them as well.  This is a great way to transfer out a large portion of an estate if executed consistently over a long period of time.

[i] 2021. Expanded tax benefits help individuals and businesses give to charity during 2021; deductions up to $600 available for cash donations by non-itemizers | Internal Revenue Service. [online] Available at: <> [Accessed 27 October 2021].

[ii] 2021. [online] Available at: <> [Accessed 20 October 2021].

[iii] Schwab Charitable. 2021. [online] Available at: <> [Accessed 20 October 2021].

[iv] Lund, C. and Adams, H., 2021. [online] Schwab Charitable. Available at: <> [Accessed 20 October 2021].

[v] Dixon, A., 2021. Standard Deduction: How Much Is It and How Do You Take It? – SmartAsset. [online] SmartAsset. Available at: <> [Accessed 27 October 2021].

[vi] Orem, T., 2021. 2020-2021 Federal Income Tax Brackets & Tax Rates – NerdWallet. [online] NerdWallet. Available at: <> [Accessed 27 October 2021].


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