Taxes and Giving: What to Consider Before Year-End

JULIE PARDUE:

Hi. I'm Julie Pardieu, director of Bessemer Giving Fund. And I'm Nikki Kinnick, the regional director of tax advisory Services. So Nikki, we are approaching the end of the year.

I can't believe we're already here. We've spent the whole year doing a lot of things, but then we get to the end of the year and we're thinking, okay, what are the practical things that clients should be thinking about? Maybe talking to their advisors, maybe thinking about themselves personally, things that just are on their mind. So with that, my first question to you is really, you know, what are the questions we should be asking?

NIKKI KNOECK:

Julie, year end tax planning can be a really overwhelming process for a lot of people.

When I work with clients, I often use a four part framework to make this process easier to understand. First, I want them to take a broad view of what their current financial situation is.

Second, I want them to be very intentional with their planning.

Third, I want them to think ahead.

And fourth, I need them to take action.

JULIE PARDUE:

On my side, something that I spend my whole day doing is working on donor advised funds. And so when we think about donor advised funds, we're really thinking, you know, this idea of making a contribution into the account. You're getting your tax benefits at that point. Right? And so a donor advised fund is really a planning tool or vehicle. I often think about it as an alternative to a private foundation. I'm gonna ask you my next question which is, you know, really what types of assets should we be thinking about when it comes to that charitable planning?

If you hold any appreciated securities,

NIKKI KNOECK:

it might be a more attractive asset than just using cash to fund those philanthropic intentions that you have.

When you give appreciated security, that embedded capital gain, that's eliminated. And you get a deduction equal to the fair market value of that asset on the day you give it. So generally speaking, we really encourage our clients to think about using their long term appreciated securities instead of cash.

JULIE PARDUE:

You make a whole bunch of really great points there. So let's talk about the bunching strategy.

It became relevant because last year there was a new charitable deduction floor that came into effect. And essentially, donors were looking at creating a bunching strategy where they were making a lot of charitable contributions in one year, giving it to a donor advised fund so that they could give it away in future years. We've actually made double the amount of grants this year than we had made last year. We saw the great work that our donors are doing. They're giving that money away. It's really exciting to be a part of that and and looking at that.

NIKKI KNOECK:

That bunching strategy that you just talked about, that really hits home on our third framework of planning, thinking ahead. So last year, we knew for this coming tax year, we're gonna have a new limitation on itemized deductions. So depending on your level, a half a percent of your adjusted gross income, that that's not deductible for charitable contributions. So last year, our clients decided let's bypass this new limitation and prefund some of our charitable intentions last year. Great strategy thinking ahead. We wanna expand that thinking as well beyond just charitable planning.

JULIE PARDUE:

Tax efficiency can be really valuable as part of the plan, but it sure...

Certainly shouldn't define it. Right? I mean, when we're talking about charitable planning, it really is about the communities and causes that the donor is trying to support. And a lot of that, you know, this year in particular has to do with the rising costs.

We're all experiencing inflation in different ways, and certainly our communities are are feeling that as well. And we're seeing our donors really come to that table. They're making incredible grants towards things like medical research, education, disaster relief. So on that point, you know, what really has to get done this year before the end of the year?

NIKKI KNOECK:

Julie, the fourth part of the framework of a year end planning is take action. So this is when the to do list really does take form. So assess what has to be completed by December 31. But most importantly, you need to give yourself enough time to think about what you what you wanna accomplish and then coordinate all of the different advisers and pieces in order to accomplish your goal.

JULIE PARDUE:

So timing really does matter when we're thinking about contributions coming into the donor advised fund. We do need those to actually credit the account before the end of the year.

And so it's really important to start thinking about this now. And also on the grant making side, when you're making your grants to other public charities, they love receiving those donations, you know, really early in the in the month of December so that they have time to process them and they know that they're in their account. And then also while you're doing it, thinking about the tax records. Right? Like, we need to get those tax records off to you guys so that you have them and you can start, you know, looking at the tax picture when they... When the year really comes to a close.

We've talked about a lot of different planning strategies today

NIKKI KNOECK:

and everyone's personal situation is very different.

We recommend you reach out to your advisor to see what best fits your situation.

JULIE PARDUE:

And from all of us here at Bessemer, we wish you a happy and joyous holiday season. Thank you.