Maximizing Impact: Smart Strategies for Year-End Charitable Giving and Tax Planning

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Get ready for year end with strategies for charitable giving, maximizing your IRA and flexible spending accounting, giving to family and friends, and donating to a young person’s 529 plan. We’re joined by Caroline Van Hook with Elliott Davis and Gina Blohm with the Community Foundation of Greenville to explore savvy giving tactics and the interplay between charitable contributions and tax planning. This episode is your guide to making informed and impactful decisions in your philanthropic and financial journey.

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Transcript

Katy Smith:
On behalf of Greater Good Greenville, the Community Foundation of Greenville, and Elliott Davis, we would like you to know that this podcast is for informational purposes and does not contain or convey specific tax advice.
It should not be used or relied upon in regard to any particular situation or circumstances without first consulting the appropriate advisor.

Well, we are approaching year-end and it’s a time that a lot of people are beginning to think about tax planning and decisions they might make about charitable giving, or at least they should be thinking about that.
And we are so glad to be joined by two people who can really help give everyone food for thought as they go through those deliberations, Caroline Van Hook with Elliott Davis and Gina Blohm with the Community Foundation of Greenville.
Thanks to both of you for being here.

Gina Blohm:
Thanks for having us.

Caroline Van Hook:
Yes, thank you.

Katy Smith:
All right, so I’m wondering if we can kind of think about what are your top recommendations that you would offer? What are you talking with clients about?
What are you hearing from folks that you would give them feedback on?
Things that they should be thinking about now as we approach year-end.
What’s top on your mind, Caroline?

Caroline Van Hook:
What’s top on my mind is charitable giving.
So, in the event that you may have had a large capital gain in calendar year 2023, you should be looking for opportunities to mitigate your tax.
And one way to do that is through charitable giving.

Katy Smith:
That’s great. So for someone who’s like, I don’t know, have I had a capital gain? What kind of things constitute a typical capital gain for people?

Caroline Van Hook:
So let’s say you may have had a business transaction where you sold your business.
You would have a large capital gain, presumably.
Or let’s say that, you know, the market is going up this year.
We’ve had some ups and downs in the market.
So you may have some realized gains from your investment accounts, you should reach out to your investment advisor, see what your capital gain activity looks like for the year, and then maybe discuss with your tax advisor how you might could reduce that.
And one way might be through charitable giving.

Katy Smith:
Outstanding. So we have so many great nonprofits that I’m sure would be happy to talk to anyone about a way to help them minimize that capital gains tax.
But one really great tool is at the Community Foundation with the donor-advised fund. Gina, can you talk a little bit about how a donor-advised fund can help in that scenario?

Gina Blohm:
Sure. This time of year, we get a lot of referrals from local accountants and financial advisors.
So we get calls from individuals and families who are looking to set up a donor-advised fund.
So a donor-advised fund can be thought about as a charitable checking account type of charitable giving vehicle.
It’s often thought of as an alternative to a private foundation.
So you can use this fund to support the nonprofit organizations that you and your family are passionate about.
The fund is really easy to establish, so it typically just takes one signed document to set it up, and then, of course, you have to fund it.
Oftentimes we see that people fund it either with cash, so they give us a check to open the account, or they might transfer stock, appreciated securities, to set up the fund as well.
We find that they’re tax-efficient.
You can receive your tax deduction at the time the fund is established and also when any additional contributions are made either during that calendar year or any subsequent calendar year.
They are cost-effective, so there are no legal or startup costs.
That’s another thing that makes it a pretty easy charitable giving vehicle to set up.
And they’re flexible, so you can keep the funds in either a money market account, or you can choose to invest the funds.
And, of course, if the funds do grow, you’ll have more money to direct to charity as well.

Katy Smith:
That’s such a great tool. And just to make sure people really understand it, that if they set up a donor-advised fund now, they get the immediate tax benefit of the charitable gift.
But then they can give over decades, over any period of time, to their church, to their university, to any great nonprofit.
So it gives that immediate benefit tax-wise, but then the long-term investment in philanthropy at their own pace.

Gina Blohm:
Yeah, we see all types of different ways that families use these funds.
So, sometimes they’ll fund it and then direct all that money to charity in that given year.
Other times, families will set up the fund now and make plans to use those funds either in the next year, two, three years, or ten years down the road.
One of the great things that makes this account so flexible is that you’re not required to give out a certain amount from your fund each year like you would be with a private foundation.

Caroline Van Hook:
So, I was just going to say, in my experience, like in the example where you might have had, if you’re a business owner, you sold your business, and let’s say you’re looking at a $4 million capital gain, and you’re looking for ways to reduce your taxes.
End charitable giving is obviously one of the ways to do that.
But you and your family haven’t spent the necessary time or research to determine where you want those dollars to go, but you need the tax deduction now.
That’s why the donor-advised fund is so nice.
And, you know, back to the benefits of the Community Foundation, I’ll just throw in that your dollars are staying in our community.

Katy Smith:
That’s great, Caroline. Thank you for highlighting that. So you mentioned appreciated stock, moving it into your donor-advised fund.
And can you talk a little bit more about how that works?

Caroline Van Hook:
Let’s say, for instance, you have some stock that’s worth $450,000, and your cost basis in that stock is $300,000.
So that means that you would have a capital gain of $150,000.
So if you sold that stock and you paid the tax on that, your federal income tax, just federal, would be approximately $36,000.

So now you don’t have as much to donate to the charitable organization because it would essentially be the $450,000 minus the tax.
So, a much smarter way to get rid of appreciated stock, highly appreciated stock, is to donate it to a charitable organization.

If you move the appreciated stock into a donor-advised fund, or let’s even say, for example, you have made a pledge to your church, and it was a pledge over five years, but you want to pre-fund that pledge in one year.
You could transfer to the stock, to the donor-advised fund, or directly to your church, and you’re essentially giving away more because you’ve avoided paying the federal income tax of approximately $36,000.

So it’s really a smart way to do your donations.
Another strategy that I’ve heard from an investment advisor is, okay, if I want to give away $450,000, take this appreciated stock, move it to the donor-advised fund or to the charitable organization of your choice, and then take $450,000 of cash, which you might have been planning on giving, and put that back into the market.
So basically, make yourself whole again.
So you’ve saved the tax dollars, but you’ve made yourself whole.
And I know I’m using big numbers in this scenario, but it works; the same theory works, whether it’s $10,000, $100,000, $450,000, whatever it is.
But to the extent that you have highly appreciated stock, it’s really the smartest way to get the most bang for your buck when you’re making a charitable organization donation.

Katy Smith:
That’s really smart. That’s a really great tip.
Now I kind of even more basically, I don’t feel like enough people know about the way they should approach their charitable giving with their IRA if they’re over the age of 73. Can you talk a little bit about that?

Caroline Van Hook:
Yes, so that is, you know, another really smart way to do your charitable giving.
So, many people may have in their mind that through an IRA you have to take a required minimum distribution.
The age that you used to have to start taking required minimum distributions was 70 and a half.
And under the Secure Act 2.0, which was recently enacted beginning in 2023, you need to start taking your required minimum distributions at age 73.
So what does that mean for you? If you have an IRA balance, your broker or whomever holds your IRA would compute the amount that you’re required to take out of the IRA, and of that dollar amount that you’re required to take out, you can give up to $100,000 to a charitable organization.

The money cannot come to you first and then go to the charitable organization.
So it needs to be what we call a trustee-to-trustee transfer.
So the money would go directly from your IRA to either the nonprofit of your choice or to a donor-advised fund.
Again, it’s the same theory that I just went through regarding the capital gains, now instead of you taking the $100,000 out, paying ordinary income tax on it, so now we could be talking about up to $37,000 in taxes on that $100,000, if you were in the highest tax bracket.
Now you’re going to have $100,000 that goes directly to the charitable organization, as opposed to having it be $100,000 minus the tax of $37,000.
Another cool little nugget that you may want to know, if you and your spouse both have IRAs and have required distributions, you can each give up to $100,000.
So a married couple could do up to $200,000 to charitable organizations of your choice.

Katy Smith:
That’s great. And I know that it’s something that people might be thinking about all at once about how to do this, but I know you gave your mom a practical tip.
I wonder if you’d share that with folks.

Caroline Van Hook:
My mother likes to do her charitable giving throughout the year, and so she worked with her broker where she got a checkbook for her IRA, and my mother writes her checks directly to the nonprofit organization of her choice.
And so it’s just an easy way for her to manage her charitable giving.
And instead of having to pick up the phone each time she wants to make a charitable donation through her IRA, she has the checkbook to do that instead of having to ask her broker to make that transfer for her.
So maybe not all investment firms have those options, but I think a lot of a lot of them do.
And if you haven’t asked your advisor about that, you should.

Katy Smith:
That’s great. One thing that all these family gatherings make people think about is their giving to family members, and maybe they’re thinking about it in their will.
But people really can give money to their family members right now while they’re alive and enjoy that. Can you talk about that?

Caroline Van Hook:
Absolutely. So for all of us, for those of you who may not know, currently, when you pass away if you have total assets less than $12.92 million, or for a couple, that would be $25.84 million.
If you have assets more than that, you would have a taxable estate.
The estate tax exemption is set to expire at the end of calendar year 12-31-25. So what you may not be aware of, you on an annual basis can do gifting to your children, and this is what we refer to as the annual gift tax exclusion.
So an individual can give $17,000 to a family member.

You could give it to a close family friend. It does not have to be a person who is related to you.
As long as you do not give them more than $17,000 per individual, then you would not have a gift tax filing requirement.
So, for example, if you’re married, and you want to give your daughter her annual gift exclusion for the year, you could give $17,000 and your husband could give $17,000.

So that would be $34,000 for your daughter.
If your daughter’s married, you could do the same thing for your son-in-law.
So you could give up to $34,000 for the son-in-law.
You could do the same thing for a grandchild. Or let’s say your grandchild, you are more interested in saving dollars for their education.
You could set up a 529 plan, which is dollars set aside for your grandchild’s education.
A lot of people have a misconception that when you make a donation to a South Carolina 529 plan, that your child has to go to school in the state of South Carolina. That is absolutely not true.

What it means is, is your child, your grandchild or child can go to school anywhere, it just has to be a qualified educational institution.
So it could either be a technical school, it could be them going to Greenville Tech, it could be them going to Texas A&M.
I don’t know why I said Texas A&M. I’m not a Texas A&M fan.

That is one thing that you could consider doing, and the key is, if you are a couple who is fortunate enough to have a taxable estate of more than approximately $26 million, it’s key that you get those assets out of your name.
Because if you don’t, at your death, you will be paying estate tax, and the estate tax rate is 40%. So, that’s why you really need to sit down with your advisor and start thinking now.
Don’t wait till it’s too late. I think most of us would prefer for our heirs to have those dollars as opposed to having to pay the government federal taxes when if we had just planned better, we could have avoided that.

I guess another planning tip, if you have an estate tax over $26 million, would be to go see someone like Gina on her team.
And maybe Gina, you would want to address how you could help them with charitable giving.

Gina Blohm:
We do have families that come to us to talk about their charitable giving during their lifetime because they do find themselves in a situation where they’re afraid that their estate might be more than that $25 million threshold, especially because it is set to expire at the end of 2025.
So we talk a lot with individuals and families about what their giving has been like over the course of their lifetime and in recent years, and to talk about making gifts, bigger gifts now so that they can see that impact during their lifetime.
And also so that they can talk with their children and their grandchildren about their legacies and about what’s important to them, their passions, their values, and how they can make those charitable gifts now to see how that makes an impact in our community. They’re also thinking about sometimes this is with your churches, sometimes with your alma mater’s local charities as well, but starting to think about major gifts and maybe you’ve supported some local organizations every year for years at a certain level, but as you think about your estate, you might want to think about how you can make some major gifts or larger gifts during your lifetime.

Katy Smith:
That’s great. So I love the flexibility that people have to make gifts to family members, close friends, to give to charity in meaningful ways, to have the flexibility of a DAF, and to think about how those gifts will happen after they die.
But are there ways for people to make a big impact on a particular nonprofit or particular issue in the community right now before they pass away that they can see the impact that lives on?

Gina Blohm:
So we see families or individuals set up endowment funds during their lifetime and then give us framework to make sure that their charitable wishes are carried out.
So an example of that would be if you fund an endowment fund now for, say, a million dollars, then an annual distribution from that endowment fund would be about $40,000 per year.
So say you just say you want that to be used on an annual basis for the benefit of Greenville County. So, it could go for things like affordable housing, or you could specify an area like the arts or education.

Katy Smith:
So what would be the difference between why someone would set up a donor-advised fund versus an endowment fund? And can you give an example?

Gina Blohm:
Oftentimes, families and individuals set up donor-advised funds for their current giving during their lifetime.
So they might fund it for the next three to five years worth of their annual giving. An endowment fund is something that a family or individual would set up if they want it to be perpetual, so for it to make gifts forever, more so in alignment with their legacy.

Caroline Van Hook:
One other thing to consider that just came to mind that we haven’t had a chance to discuss with that’s a nice benefit of donor-advised funds is what we call bunching of charitable donations.
So this, in theory, is how that works. So you could do, let’s say, you were a family that gave $20,000 a year on average in charitable giving.
You could give two years’ worth in 2023.
So in calendar year 2023, you would make a $40,000 gift to your donor-advised fund that would really cover your charitable donations for calendar year 23 and 24.
So from a practical standpoint, what’s going to happen is on your 2023 return, you would itemize your deductions, but then on your 2024 return, you would take a standard deduction.
Currently, the standard deduction is approximately $28,000 for a married couple.

So that is something that if your tax advisor has not discussed with you, you might want to ask them. Now, of course, everybody’s tax situations are different.
If you have mortgage interest and state income taxes, this may be a moot point, but certainly, for retirees who probably do not have mortgage interest at this point in the game, they may not have high-income state income tax deductions, it probably makes sense to consider bunching.

And this could be in the timeframe between when somebody retires and when they’re eligible to make the qualified charitable distribution from their IRA.

Katy Smith:
I love this because it shows how there are so many creative ways to be generous that are both beneficial to charity, give you a ton of flexibility, and that can benefit your tax liability if you’re deploying these tactics well.

Caroline Van Hook:
It’s kind of like that saying, work smarter, not harder.

Katy Smith:
Yeah, yeah. And find a good advisor to work with you in the process, too, I think is a benefit.
All right, so some people might be thinking, well, I sure wish that was me with those kind of problems that they think I’d love to have that kind of resources to give.
But there are still things that people of all income levels should be thinking about as they approach the end of the year.
So what are some other tips you have for folks here at year end?

Caroline Van Hook:
So this is kind of what I would consider more low-hanging fruit, but one thing to consider is if you have a flexible spending account, which you would have through your employer, those plans typically are designed as use-it-or-lose-it plans. So, in other words, if you have coming directly from your paycheck a deduction that’s going into a flexible spending account, you have to spend all those dollars by the end of the year, and if you don’t, then it stays in the account, and you don’t get the money back.
So it’s really important you keep a watch on how much money you have in that account and make sure you’ve spent all those dollars.
So if you found yourself, you’re at the end of the year, you have money left, refill your prescriptions.
Do just some of the small things. If you need to schedule a doctor’s appointment because you have more money to spend, maybe you need a new set of eyeglasses.
Things like that are things that you should consider before the end of the year hits.
Or alternatively, let’s say that you’re on a health savings account and you’ve already met your deductible for the year.
Another consideration would be, again, just to go through your prescriptions and refill prescriptions right at the end of the year because you’ve already met your deductible for that calendar year.
Maybe it was a year that you had a large surgery, and you met your deductible, and you may not, you’re not a person who typically meets your deductible.
So in those situations, just try to maximize the benefits that you can receive from your health insurance.

Katy Smith:
All right, what are some other tips for people that could be at any point in their career? They could be beginning their career and have year-end planning.

Caroline Van Hook:
Yes, so a few other things just to keep in mind is make sure that you have your eyes on how much money you’ve put in your retirement accounts.
So with a 401k, those have to be funded through payroll only and they have to be funded within the calendar year.
So for 2023, somebody who is under the age of 50 you can fund up to $22,500, and if you’re over 50, you get an extra $6,000, so that would make your total contribution of $28,500.

This is a super great tax savings tip.
Remember that anything that goes into a 401k it’s not taxable when you put the money in there; it’s taxable when it comes out.
So your money is essentially in your retirement account, growing tax-deferred until you reach the age when you can start taking those dollars out.
By utilizing your 401k, you’re also able to receive the match that your employer may so generously be giving you. So always think about that.
If you’re a person who does not have a 401k, then there’s also individual retirement accounts.
And for an individual retirement account, those also should be funded.
And for an individual who is under the age of 50, that’s $6,500 for the calendar year. And if you’re over 50, it’s $7,500.
So I would encourage you just to look at your individual situation and make sure that you are maximizing your tax savings by investing for your future in a tax-deferred investment strategy.

Katy Smith:
Okay, so people have got great tips now of what they should be doing November, December as the year-end comes, and then it is December 31st, and I know Gina that the Community Foundation is wonderfully, extremely busy as folks are trying to make those last arrangements.
What thoughts do you have to share with people as December 31st approaches?

Gina Blohm:
Yeah, of course, you need to get your charitable gifts in before year-end, and it just so happens that this year the last day of the year is on a Sunday.
So, Friday, December 29th, keep that date in mind.
And if you are making your gift to your favorite charities or sending a gift for your donor-advised fund at the Community Foundation or otherwise, just be mindful that the last day of the year does fall on a Sunday.
And, of course, you’ll want to postmark it by Saturday, December 30th.

Katy Smith:
Great. And then one thing that I think of as the calendar page flips to January 2024, people will start to get their W-2s and begin to think about filing taxes.
And I want to make listeners aware that we have a great program in Greenville County called VITA, which is the Volunteer Income Tax Assistance Program powered by United Way, and that’s a way to get your taxes done for free if you meet the income guidelines.
The thing that is great about it is when you get your refund you will get all of your money.
It’s not as immediate as some of the storefronts that you might see, but all those dollars you’ve been waiting for all year will come straight into your pocket rather than having some shaved off the top.
We’ll put a link to an episode we did on VITA last year in the show notes so you can take a listen.
But Caroline and Gina, for now, I am so grateful to you for all that you do to help people give the most they can to charity and do it wisely and for being with us today to share these tips with folks.

Caroline Van Hook:
Thank you for having me. I’ve really enjoyed my time.

Gina Blohm:
Thank you so much, Katy.

Catherine Puckett: Simple Civics: Greenville County is a project of Greater Good Greenville. Greater Good Greenville was catalyzed by the merger of the Nonprofit Alliance and the Greenville Partnership for Philanthropy. You can learn more on our website at greatergoodgreenville.org. This is a production of Podcast Studio X.

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