These record levels are expected to continue through the end of the year as individuals and their advisors seek to meet charitable giving priorities while also navigating the uncertain outlook for taxes given the expiration of the Bush-era tax cuts at year’s end, according to Schwab.
“November and December are traditionally a time when many people activate their giving strategies, contributing to their donor-advised accounts in advance of year-end contribution deadlines, as well as making grants to their favorite causes as part of their holiday giving traditions,” said Kim Laughton, president of Schwab Charitable. “This year in particular, we are already seeing an even more pronounced surge in activity as individuals look to reduce their estate sizes and tax burdens and maximize what they are able to give to charitable causes.”
A donor-advised fund allows investors to contribute cash or appreciated assets to a charitable account now, to realize the greatest possible tax benefits, and to then more strategically support charities of their choice over time. Schwab Charitable’s account sizes range from $5,000 to almost $500 million.
With the uncertain tax environment top of mind for many donors this season, Schwab Charitable has outlined five approaches for individuals and their advisors to consider as part of their financial and tax planning:
1. Reduce estate size before taxes rise and exclusion amount drops:
With estate tax exclusions potentially decreasing from more than $5 million to $1 million and estate tax rates set to potentially rise, individuals can make donations to charitable accounts that will enable them to immediately reduce their estate size and tax exposure and give more to important causes during their lifetimes.
2. Donate highly appreciated assets to charitable accounts to offset taxes from accelerating capital gains:
Contributions can be made now to realize the maximum tax benefit but donors can choose which charities they want to support later.
3. Donate to charitable accounts in 2012 to lock in the maximum deduction:
Some proposals to cap itemized deductions starting in 2013 could reduce the income tax benefits of future charitable gifts.
4. Donate to charitable accounts to reduce the income tax generated by a Roth IRA conversion:
For individuals who are converting a traditional individual retirement account (IRA) to a Roth IRA, charitable giving can help to offset the taxes resulting from such a conversion.
5. Donate to charitable accounts to enable tax-free growth to support future giving:
In general, putting as much money as possible into non-taxable accounts enables potentially greater tax-free growth which, in the case of charitable accounts, can support an ongoing strategic giving strategy.