1. Simplify Your Charitable Giving

In any given year, donors may support a variety of causes in different amounts. It’s often a challenge to keep track of what one has given so far, and to which charities. In addition, the task of supporting multiple charities through separate transactions, and gathering multiple tax receipts may also drain valuable time out of a busy day. A donor-advised fund (DAF) serves as a single tax-free charitable account to support multiple charities, and also track your giving, thus providing you an easy and convenient method of charitable giving, especially during a busy year-end season.

2. Review Donation Opportunities

Donating appreciated marketable securities held for over a year may serve as a tax-free way to reallocate your portfolio as part of your annual investment review.* Other opportunities may also exist beyond your investment portfolio and warrant review.

• Corporate executives may benefit from donating long-term appreciated vested company shares received as compensation. They may wish to diversify out their concentrated position systematically, and also reduce the taxable income from receiving newer shares or units as taxable compensation.
• Business and real estate owners planning to sell any long-term holdings this year may also benefit from donating all or part of them to a DAF before the sale is negotiated. In doing so, they have the potential to reap a double benefit of (1) bypassing capital gains tax upon sale on the portion donated to charity and (2) a charitable deduction. By contrast, donations of long-term nonpublic company shares to a private foundation can only yield a cost-basis deduction.
• Those planning a partial or full Roth IRA conversion, and facing a corresponding income tax liability, may consider charitable donations made in the same year to potentially reduce taxable income, and the corresponding effective tax rate for that year as a result. If you have charitable donations planned for future years, you could consider accelerating them into the Roth conversion year by funding a DAF, which provides a current-year deduction and allows for subsequent charitable distributions to multiple charities.
• Donors anticipating retirement or a need to supplement income: Those who wish to benefit charity in the future, but also retain some income stream for themselves (and their spouses), may consider a Charitable Remainder Annuity Trust (CRAT). The timing for CRATs often becomes more optimal in a high interest rate environment and thus we consider them to be more beneficial at this time.
• Those with matching opportunities: You may potentially double or even triple your impact through certain campaigns at your workplace or with your annual roster of charities. Check first to see how these multiples may be applied to donations made through a DAF.
• Those who plan to fund existing private foundations may also donate additional long-term securities to a DAF, which typically qualifies as a public charity and therefore a higher deduction threshold, thereby "stacking" donations to maximize charitable deductions. For instance, individuals may donate long-term appreciated securities equal to 20% of adjusted gross income (AGI) to their private foundation, plus an additional amount of long-term appreciated securities equal to 10% of AGI to a DAF, for a total charitable deduction equal to 30% of AGI. In addition, those with private foundations may meet their 5% minimum distribution requirement by transferring to charities the commensurate value of long-term appreciated securities, thus bypassing the 1.39% next investment excise tax that would otherwise apply when selling to raise cash.

3. Beat the Deadlines

Benefitting from a charitable tax deduction this year may require some lead time, depending on the charitable recipient and type of asset contributed. For instance, donating mutual fund shares may entail processing times of up to six weeks, thereby requiring the initiation of the transfer by mid-November. In addition, nonprofit organizations vary in their ability to process non-cash donations in a timely manner. Since most charitable giving typically occurs during the last two months of each year, it is an opportune time for your Neuberger Berman team to review your balance sheet and work with your tax advisor to identify optimal assets to transfer and then execute on your philanthropic objectives for the year.

*Caveat: The deduction for any charitable transfer remains limited to a certain threshold, based on a percentage of your adjusted gross income. While any excess deduction carries forward to the subsequent five tax years, you should consult with your tax advisor in coordinating the timing and types of donations for optimal tax efficiency. Accounting for this limitation remains especially critical for any outsized donation, e.g., of a business interest.