Now Is the Time for Conversations About Charitable Intentions
By HILLARY BURR, CPA, MST
While I can’t confirm the percentage of us that are procrastinators, I am comfortable assuming that, when it comes to year-end planning, that percentage skyrockets.
Understandably so, because this time of year is filled with travel, family, and holidays. For those reasons, now is the time to start thinking about year-end. This is particularly true if this will be a high-income year or if you are considering making larger charitable donations before year-end.
Here are some things to think about:
Get Your Advisors Talking
We often work with investment advisors, estate-planning attorneys and sometimes a client’s family office as a team. Each advisor brings a valuable piece to the table to assist in the decision-making process. Having a handle on how the current year compares to the prior year and the impact on your upcoming tax liability allows your tax preparer to take a team approach with you and any of your other financial and legal professionals in deciding what makes sense for the remainder of the year.
It also allows this team to combine estate planning with income-tax planning.
A Focus on Philanthropy
When you have a high-income year, this is a natural time to consider the benefit that year-end charitable contributions can have.
This could be from selling a business or large holding in your portfolio, a stock-option exercise, or maybe a significant bonus. Often, clients know the amount they are comfortable donating. Your tax professional’s role is in educating you and your team to structure those donations in the most tax-efficient way and to confirm the desired outcome has been achieved.
If you are planning on donating or gifting appreciated securities, have a conversation with your custodian as to when they stop accepting transfer requests. The deadlines can vary by custodian, so having the conversation earlier allows you to ensure that it can be acted upon, as opposed to waiting until the end of the year, when it may be too late to request these transactions.
If you are planning on donating real estate or tangible property, you’ll need time to obtain the proper valuations and get the legal documents in order, so the earlier the better.
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Consider a Donor-advised Fund
An excellent planning tool for charitable giving is a donor-advised fund (DAF). This allows you to take the deduction on your return for the contribution in the current year while allowing you to be thoughtful in your giving. For example, if you are able to give a large amount to a DAF in a high-earning year, you can give smaller amounts away to your favorite charities, keeping annual donations at a level you are comfortable with and allowing you to give the same amount to the charity in your lower-income years. This approach is particularly useful in the last earning years before retirement.
Donor-advised funds can also be used to meet required distributions from a private foundation and can serve as a good opportunity to get younger members of the family involved in charitable giving with the funds in the DAF.
Review of Carry-forwards
If you have larger donations made in previous years that are coming up on their five-year expiration, you may be able to utilize the carry-forward and delay the contribution to January, effectively moving it into the next tax year.
Similarly, if income can fluctuate, as we saw with late capital-gain dividends in 2014, consider whether it makes sense to create a little bit of a carry-forward with your donations and make sure you’re achieving as much tax minimization benefit as you can.
Don’t Miss Out
Not taking action until Dec. 31 can leave you open to changes in the law but could also move a deduction or planning opportunity out another year, meaning April 2017 before you see the benefit. n
Hillary Burr is a CPA and principal with Wolf & Co., an accounting firm in Springfield and Boston; (617) 428-5460; [email protected]