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California Business Journal
Asset Preservation Strategies

Guest Commentary: Charitable Planning Opportunities in 2022 … and Beyond

To truly reap the benefits of charitable giving, having the proper plan and strategy in place is step one.

by John Jenkins, Special to California Business Journal
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Charitable giving can be a wonderful way to re-invest in the community and support organizations that are blazing a philanthropic trail. As an adviser, I have seen how the benefits of giving back can be maximized through proper and strategic planning. There are a variety of charitable planning strategies, and selecting the right strategy is the first step to ensuring your charitable giving has the impact you hope it will.

Qualified Charitable Distributions

Making qualified charitable distributions (QCDs) is a smart way to give to charity while minimizing taxable income for clients ages 72 and above who are required to take required minimum distributions (RMDs).
RMDs can be a tax irritant for some retirees. They’re required to withdraw money that they don’t need for living expenses (and must pay tax on it in the process). The exact value of a client’s RMD can be anywhere from 4% to 53% of their account balance depending on their age. That’s where QCDs come in.

QCDs are an increasingly popular and powerful tax-saving tool because they can benefit clients, regardless of whether they itemize deductions or take the standard deduction. Making a QCD counts toward your RMD for the year. You can fulfill your RMD requirement by donating all or part of it while avoiding income tax on the withdrawal. Anyone subject to RMDs can make as many QCDs as they would like, up to $100,000 a year; however, contributions made to an IRA after age 70.5 can reduce the amount allowed to be claimed as a QCD. To make a QCD, you should submit a request to your IRA custodian.

Donor-Advised Funds

Donor-advised funds (DAFs) are private investment accounts established by an individual and managed by a third party to benefit one or more nonprofits. Clients who establish a DAF have advisory rights and can recommend grants from the fund over time to benefit particular projects at their favorite charities. Assets invested in a DAF can include cash, stocks, and even cryptocurrency.

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Any assets invested in a DAF can qualify for an income tax deduction for that tax year under the applicable deductibility rules. According to National Philanthropic Trust, there were more than 1 million DAF accounts in 2020, holding nearly $160 billion in assets. Those numbers are only expected to grow. DAFs are a great option for affluent, charitably-inclined clients who want to make thoughtful gifts over a long period of time while also enjoying tax benefits.

There were recent legislative efforts made around DAFs to limit a donor’s advisory rights and the time horizon for distribution of funds, which would likely have curtailed gifts made to DAFs. But the Accelerating Charitable Efforts (ACE) Act hasn’t yet passed in Congress, so for now, those feared limitations shouldn’t deter a client interested in funding a DAF.

Cryptocurrency Donations

Many people overlook the fact that they need to pay capital gains tax on their crypto earnings (unless they are held in a pre-tax account) just like they would when they sell appreciated stock. One way to offset these taxes (or avoid them altogether) is to donate their crypto to a nonprofit. Another important point to consider is that if cryptocurrency is used to buy goods or services, taxes are owed on the increased value between the price paid for the crypto-coin and its value at the time it was spent. Additionally, if cryptocurrency is accepted as payment for goods or services, it must be reported as business income.

The tax deductions can be different with crypto than stock. When you give appreciated stock or most other assets you deduct the FMV at the time of the gift. When you donate crypto you only get to deduct the FMV if you have owned the crypto for more than 1 year. If you owned it for less than 1 year you only get to deduct your basis. Therefore, do not gift short-term crypto holdings.

You are also required to have an appraisal done on total annual contributions of over $5,000 along with additional filing requirements. Charities that support crypto donations may only accept larger mainstream coins, like Bitcoin and Ethereum. There are thousands of cryptocurrencies (coins) currently in existence, and new ones are created every day. Nonprofits that allow crypto donations will often have a platform on (or accessible from) their website where clients can complete the transfer. There are also third-party sites that let individuals easily donate to any charity.

As with so many things in life, to truly reap the benefits of charitable giving, having the proper plan and strategy in place is vital. Throughout my career, I have seen how investing time in setting up thoughtful and intentional strategies can yield greater results. While time is something we can’t technically buy more of, we can choose to spend our time wisely in the hopes of maximizing each moment while building a fulfilling and meaningful life.

John Jenkins, AEP®, CFP®, CFF®, BPC, is Chairman and Senior Financial Adviser, Asset Preservation Strategies
John Jenkins, AEP®, CFP®, CFF®, BPC, is Chairman and Senior Financial Adviser, Asset Preservation Strategies

John Jenkins, AEP®, CFP®, CFF®, BPC, is Chairman and Senior Financial Adviser, Asset Preservation Strategies.

NO OFFER OR SOLICITATION: The contents of this press release: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, and (ii) may not be relied upon in making an investment decision related to any investment offering. Asset Preservation Strategies, Inc is a DBA of Axxcess Wealth Management, LLC, an SEC Registered Investment Advisor. Investment Advisory Services offered through Axxcess Wealth Management, LLC. Securities offered through Arete Wealth Management, LLC Member FINRA, SIPC, NFA Asset Preservation Strategies, Inc., Arete Wealth Management, LLC nor Axxcess Wealth Management, LLC are affiliated. Axxcess and Arete do not warrant the accuracy or completeness of the information contained herein. Opinions are our current opinions and are subject to change without notice. Prices, quotes, rates are subject to change without notice. Generally, investments are NOT FDIC INSURED, NOT BANK GUARANTEED and MAY LOSE VALUE. Brokerage services are offered through Arete Wealth Management, LLC Member FINRA, SIPC, NFA. Information pertaining to Arete Wealth Management, LLC and its registered persons are available through the FINRA’s Broker Check System or by calling the FINRA’s Broker Check Hotline at (800) 289-9999. Asset Preservation Strategies, Inc and its advisors do not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

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John Jenkins, Special to California Business Journal

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