Hi, I’m Bette Hochberger, CPA, CGMA. For today’s quickie, I will discuss tax strategies for charitable high-income earners, including donor-advised funds, remainder trusts, and qualified charitable distributions from retirement accounts.

As a high-income individual, you have the unique opportunity to make a significant impact through charitable giving. However, navigating the complexities of the tax code while maximizing your generous efforts can be challenging. So, let’s jump in and learn more!

Donor-Advised Funds (DAFs)

Donor-advised funds offer an excellent solution for high-income individuals seeking flexibility and control over their charitable giving. With a DAF, contribute assets, receive tax deductions, and recommend grants to charities over time.  Here are a few key benefits and considerations:

  1. Immediate Tax Deduction: By contributing to a DAF, you can take an immediate tax deduction for the total fair market value of the assets donated, subject to certain limitations.
  2. Flexibility and Control: DAFs provide the flexibility to make grant recommendations to charities at your own pace. This allows you to carefully plan your giving strategy and potentially maximize the impact of your donations.
  3. Appreciated Securities: Donating appreciated securities to a DAF can be particularly advantageous, as it allows you to avoid capital gains taxes on the appreciated value while still receiving a tax deduction for the full fair market value.

Charitable Remainder Trusts (CRTs)

Charitable remainder trusts empower high-income individuals to support causes and receive lifetime income. Here’s how it works:

  1. Tax Benefits: When you establish a CRT, you may be eligible for an immediate charitable deduction based on the present value of the future charitable gift. This deduction can help reduce your current taxable income.
  2. Income Stream: With a CRT, you retain the right to receive income from the trust for a specified period or for your lifetime. This can be especially beneficial if you have appreciated assets on a low-cost basis, as you can avoid immediate capital gains taxes upon the sale of these assets.
  3. Future Charitable Gift: CRT assets are distributed to chosen charities at the trust term’s end. This allows you to support causes close to your heart while potentially reducing your estate tax liability.

 (QCDs) from Retirement Accounts

For individuals 70½ or older with traditional IRAs, qualified charitable distributions offer tax-efficient giving. Here’s what you need to know:

  1. Tax-Free Distribution: You can directly transfer up to $100,000 per year from your IRA to a qualified charity. This distribution is excluded from your taxable income, providing a tax benefit even if you do not itemize deductions.
  2. Required Minimum Distributions (RMDs): QCDs can satisfy your annual RMD requirements, allowing you to fulfill your charitable intentions while minimizing your taxable income.

So, as a high-income individual, navigating the realm of tax-efficient charitable giving can be complex. Leverage donor-advised funds, charitable remainder trusts, and retirement account distributions to maximize your impact and minimize tax liabilities.

I hope you learned something new today. As always, stay safe, and I will see you next time.