As Enrolled Agents and financial advisors, we often work with clients seeking tax-efficient ways to support the causes they care about. Two powerful strategies can help maximize charitable impact while minimizing tax liability: Qualified Charitable Distributions (QCDs) from retirement accounts and donating highly appreciated stock from brokerage accounts.

Qualified Charitable Distributions (QCDs)

A QCD allows individuals aged 70½ or older to donate directly to a qualified charity from their traditional IRA. The distribution, up to $100,000 annually per individual ($200,000 for couples filing jointly with separate IRAs), is excluded from taxable income. This strategy is especially valuable for retirees who must take Required Minimum Distributions (RMDs) starting at age 73.

QCDs are a game-changer:

  1. Avoiding Taxable Income
    While RMDs are typically taxed as ordinary income, QCDs bypass this entirely. By reducing taxable income, you may avoid moving into a higher tax bracket or triggering phaseouts for tax benefits, like the Medicare surtax.
  2. Standard Deduction Optimization
    With the standard deduction raised under recent tax laws, fewer people itemize deductions. QCDs provide a way to gain a tax benefit for charitable contributions even if you don’t itemize.

To ensure the QCD is valid, it is advised that you work with a knowledgeable tax and financial company to make sure all the rules are followed. Allowing you to take advantage of this tax saving strategy.

Donating Appreciated Stock

The benefits of this approach include:

  1. Avoiding Capital Gains Taxes
    When you donate appreciated stock directly, neither you nor the charity pays capital gains taxes on the increase in value. This is especially beneficial for stock held longer than a year, which would otherwise incur long-term capital gains taxes if sold.
  2. Maximizing Your Tax Deduction
    You can typically deduct the full fair market value of the donated stock, up to 30% of your adjusted gross income (AGI) in a given tax year. Any excess can be carried forward for up to five years. This provides a substantial tax benefit while preserving more of your cash flow.
  3. Greater Charitable Impact
    By donating the stock directly, charities receive the full value of the asset without losing a portion to taxes, enabling them to put more funds toward their mission.

Which Strategy is Right for You?

For retirees with significant traditional IRA balances, QCDs are a simple and effective way to satisfy RMDs and reduce taxable income. On the other hand, for individuals with substantial gains in a brokerage account, donating appreciated stock can minimize taxes while maximizing deductions.

In some cases, a combination of both strategies might be ideal. For example, you could use QCDs to offset RMD income and donate appreciated stock for even greater charitable contributions.

When implementing these strategies, careful planning is key. Working with a financial advisor and tax professional like ours at Berger Financial Group can ensure compliance with IRS rules and alignment with your overall financial goals.

By incorporating tax-smart giving strategies like QCDs and appreciated stock donations, you can support the causes you care about while optimizing your financial picture—truly a win-win approach.