Eyeing a year-end charitable gift? Consider these assets for the biggest tax break

Published Mon, Nov 29 202111:49 AM ESTUpdated Mon, Nov 29 20211:03 PM EST

As the holiday season arrives, those planning year-end charitable donations may want to know how to score the biggest tax break. Almost 90% of wealthy families donated to charity in 2020, according to a Bank of America philanthropy study , with average household gifts of $43,000, up from $29,000 in 2017. While write-offs aren't necessarily the primary motivation for giving, many investors are happy to reduce tax bills. "I have a pecking order for charitable gifts to maximize both the gift itself and the tax benefits," said Marianela Collado, a certified financial planner and CPA at Tobias Financial Advisors in Plantation, Florida. Investors who itemize deductions in 2021 may claim a write-off for cash donations up to 100% of adjusted gross income , and married filers who don't itemize may claim up to $600 . But other assets may have a greater impact, experts say. Qualified charitable distributions Retirees with required minimum distributions for individual retirement accounts may first consider a so-called qualified charitable distribution , involving direct transfers of up to $100,000 per year from an IRA to an eligible charity, Collado said. Individuals who are 70½ years or older may make these charitable distributions. Qualified charitable distributions don't increase a retiree's adjusted gross income, which can trigger future surcharges for Medicare Part B and Part D , among other tax consequences. The strategy may also be favorable for retirees who expect to claim the standard deduction — $12,550 for single filers or $25,100 for married couples filing jointly in 2021 — since they won't benefit from an itemized charitable deduction. 'Bunching' appreciated assets Younger investors without required minimum distributions may consider "bunching" their giving — that is, making multiple donations in a single year to exceed the standard deduction for an itemized tax break. "The best assets to donate are almost always the ones with the biggest percentage gains," said Mitchell Kraus, a Santa Monica, California-based CFP and owner at Capital Intelligence Associates. Gifting assets owned for at least one year from a taxable portfolio avoids long-term capital gains levies of 0%, 15% or 20% for 2021, depending on income. In order to make this work, you must donate the assets directly from your portfolio to charity. Do not sell those holdings and give cash. Portfolio rebalancing Donating profitable investments may also offer a chance for year-end rebalancing. "The holy grail for advisors is when you can gift a concentrated individual stock position," said Rob Greenman, CFP and chief growth officer at Vista Capital Partners in Portland, Oregon, "and the stock selected has the largest percentage gain in the entire portfolio." Of course, the choice to shift allocations also depends on risk tolerance and long-term goals. But giving these assets may provide a way to rebalance without the tax bite.