While progress is being made in the fight against COVID-19, the impact on many of our community’s non-profits has been significant and they face a long road ahead to realize a full recovery. More than ever, these organizations will need to rely on contributions from individual donors to continue to provide valuable services to those in need.
For many organizations, programs such as the Paycheck Protection Program were a necessary lifeline to stay afloat. The program offered two opportunities for non-profits (and businesses) to obtain loans and subsequently apply to have them forgiven. However, it is unlikely that there will be another round of funding for this program, and non-profits have a long way to go to return their budgets to levels seen before the pandemic. It will be up to these organizations to find ways to fill the gap, and donations from individuals stand to be at the top of the list.
For those inclined to help, here are a few strategies one may consider when contemplating making donations – helping the organizations that help support our neighbors, while helping the donor a bit, too.
Donate Appreciated Stock
As of the writing of this article, the S&P 500 is up 20.7% year to date (9/1/2021), following two consecutive years of significant growth. For investors that have seen stock prices rise, it may be an opportune time to take some profits. One way of doing so would be by making donations from positions that have risen in value. By donating the appreciated stock, the investor avoids realizing taxable gains on that position, while at the same time obtaining a deduction for the gift made.
Qualified Charitable Distributions
Although the age requiring mandatory distributions from an IRA increased to 72, for individuals over 70, gifts can be made directly from their IRA up to $100,000 per year to qualifying charities. These distributions are tax-free and qualify to satisfy required minimum distributions when applicable. There is no minimum gift that needs to be made, and no limit to the number of qualifying distributions in a given year.
Bunching
Because charitable contributions are only deductible if one itemizes, if the total itemized deductions are less than the standard deduction, the charitable contributions one makes during the year may not be deductible. Consolidating multiple years’ gifts into one year may be a valuable strategy for realizing a charitable deduction. Through the use of a Donor Advised Fund (DAF), one could make a large contribution in a given year, only to disperse the funds in subsequent years when desired.
Arizona Tax Credits
For individuals that expect to pay Arizona State Income Tax, there are five separate tax credits available whereby one will receive a dollar-for-dollar tax credit supporting certain public-school programs and extracurricular activities, private school tuition organizations, qualifying charitable organizations, qualifying foster care organizations and the Arizona Military Family Relief Fund. Learn more about the various credits and how to take advantage of them by visiting the Arizona Department of Revenue website, Tax Credits | Arizona Department of Revenue (azdor.gov), for details.
Of course, giving cash directly is never a bad idea, either. The strategies above, however, are simple ways of leveraging the gifts one intends to make and doing so in a way that can create additional benefits for the donor. These simple strategies are not limited to the ultra-high net worth, although they often utilize them, too. These strategies are available to those that have the will and means to give.
As always, the devil is in the details, and no two circumstances are identical. It is wise to seek guidance from a tax professional to see how, or if, these strategies can apply to individual circumstances. It may also be useful to engage a financial advisor to help manage a comprehensive approach to an individual’s giving strategies.
No one has been immune from the impact of Covid-19. The organizations charged with helping those less fortunate have felt the impact tremendously, and the work ahead will be challenging. For those that wish to help, giving a donation of any kind will be more meaningful than ever. Utilizing one or several of the strategies above will provide an additional benefit for the donor, too.
Adam M. Brooks, CFP®
Senior Financial Advisor, Managing Director
