2016 Year End Philanthropy

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

Giving not only means giving to a favorite charity, it can also mean helping a family member financially. Before you make a donation or gift, however, it’s important to choose the right strategy, paying close attention to potential tax and legal implications. You should always consult with your CPA for final tax advice.

Heart in hands on light background

Strategies to Consider

Charitable Giving

You’ve likely given some thought to the charitable organization you’d like to benefit and the amount you plan to donate. But have you considered the charitable giving vehicle you’ll use to make your gift?

Let’s look briefly at some of the options:

  • Outright Gifts

Outright gifts of cash or property benefit charitable organizations by providing immediate resources. Benefit doubly if you give or gift appreciated stock or property. You’ll get to deduct its value on the date of the gift, plus you’ll avoid paying capital gains on the appreciation. Consider cleaning out your closets and donating gently-used clothing and household goods to a qualified charitable organization. Be sure to keep your receipts or bank records to validate any income tax deductions you wish to claim. Keep in mind that you may need a professional appraisal to qualify for a tax deduction on certain noncash contributions.


  • Qualified Charitable Distributions (QCD)

A QDC allows all or part of your distribution made directly from your IRA to a qualified charity for individuals age 70½ or older. QCDs aren’t subject to ordinary federal income taxes, allowing a donation to your charity of choice without incurring the ordinary income taxes you would otherwise incur on an IRA distribution.

      • The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year. (If, however, you file taxes jointly, your spouse can also make a QCD from his or her own IRA within the same tax year for up to $100,000.)
      • The distribution must be made directly from your IRA to a public charity (i.e., they cannot be made to a private foundation, a supporting organization, or a donor-advised fund)
      • For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, which is generally December 31 each year.
  • Donor-Advised Funds

A donor-advised fund is a charitable giving vehicle managed by a public charity for the purpose of distributing funds to other charities. When you contribute to a donor-advised fund, you can advise the charity on the grants it makes, as well as take advantage of possible tax deductions. Be aware, however, that there may be a minimum donation amount, and administrative fees may cut into the funds available for grants.


  • Charitable Remainder Trusts

With this type of trust, the donor receives income from the trust for his or her lifetime, the lifetime of another person, or a period of up to 20 years. At the end of the specified term, the remaining trust assets are distributed to a charitable beneficiary. The greatest benefit of a charitable remainder trust is that you can take advantage of immediate tax benefits while continuing to utilize the assets, as you may deduct the present value of the charitable remainder interest. On the downside, charitable trusts tend to be complex to set up and usually require legal and administrative support.


  • Charitable Gift Annuities

A charitable gift annuity is a split-interest gift made directly to a charity that provides you, your spouse, or a family member with fixed income payments for life. The charity typically ends up with about half of your donation, while you get an immediate tax deduction and some guaranteed income. Keep in mind that an annuity is a contract between you and the charity, and your return isn’t guaranteed by the government.


  • Private Foundations

A private foundation is a charity established by an individual, family, or corporation. Although it offers donors a great deal of control over their gifts, a private foundation can be costly to administer, and it must adhere to a strict set of rules designed to ensure that it carries out its charitable purpose.


  • Bequests

If you wish to give to charity posthumously, you may make bequests by way of your will, trust provisions, or beneficiary designations. Although bequests offer simplicity and are easy to set up, they are not income tax-deductible during your life.


If you itemize deductions on your income tax return, you can generally deduct your gifts to qualified charities. However, the amount of your deduction may be limited to certain percentages of your Adjusted Gross Income (AGI). For example, your deduction for gifts of cash to public charities is generally limited to 50% of your AGI for the year, and other gifts to charity may be limited to 30% or 20% of your AGI. Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. Your overall itemized deductions may also be limited based on the amount of your AGI. And make sure to retain proper substantiation of your deduction for a charitable contribution.


Gifting to Family Members

Giving back doesn’t always mean giving to charity. Gifting to family members can be just as rewarding, and it may also be an effective way to transfer wealth while reducing or avoiding taxes. Here are several common strategies for gifting to family members:


  • Making an Outright Cash Gift

For the 2016 tax year, you may gift up to $14,000 to an individual without tax consequences ($28,000 for married couples). If you’d like to gift more than this amount to one person, you’ll need to file IRS Form 709, the Gift Tax Return.


  • Paying College Tuition or Medical Bills Directly

If you’d like to help out a family member by paying expenses directly to the provider, the $14,000 limit does not apply. Plus, you’re still free to give the individual a separate tax-free gift, up to $14,000.


  • Contributing to a 529 plan

With this strategy, you can contribute to a grandchild or other relative’s college education while paring down your own estate. Contributions to 529 plans grow tax-deferred, and withdrawals for the beneficiary’s education are tax-free at the federal level (and usually at the state level, too).


How can we help?

With all the options available, choosing the best way to give to charity or family members can seem overwhelming. Don’t hesitate to reach out to us if you’d like to discuss various strategies. We’re happy to help you select an option that makes sense for you, your family, and your financial situation.

Contact your AEPG Financial Life Planner or Ray Hawkins at 908-821-9768 or via email at rhawkins@aepg.com to discuss your gifting strategies.



Important Disclosures: Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by American Economic Planning Group, Inc. (“AEPG”) will be profitable. Definitions of any indices listed herein are available upon request. Please remember to contact AEPG if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. This article is not a substitute for personalized advice from AEPG and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Investment decisions should always be made based on the investors specific financial needs, objectives, goals, time horizon, and risk tolerance. Please remember to contact AEPG Wealth Strategies if there are any changes in your personal or financial circumstances or investment objectives as these changes may impact our previous recommendations. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of AEPG. Descriptions of AEPG’s process and strategies are based on general practice and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.