Tax Review: Funding Options for 2025

Jun 11, 2024 | Professional Advisors

Tax Review: Funding Options for 2025

When your client is getting ready to make a contribution to a fund at the Community Foundation or other charity, remind them not to automatically reach for the checkbook! Here are other (and typically more tax-savvy) options to consider.

  • Marketable Securities – Gifts of long-term appreciated stock to a donor-advised fund or another type of fund at the Community Foundation is always one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be normally be avoided. Gifts of publicly-traded stock, for example, are easy to transfer to a fund. The Community Foundation team can provide you and your clients with transfer instructions to make the process simple.
President & CEO Trisha Finnegan discusses meeting community needs with donors Oscar and Shirley Jackson

As is the case with a cash gift, OCCF will provide a receipt for tax purposes, and the gift of stock will be valued at the shares’ fair market value medium price of the high and low of the day on the date of transfer. When the Community Foundation sells the shares, the proceeds flow into the client’s fund without any reduction for capital gains taxes. This is because the Community Foundation is a 501(c)(3) charitable organization and therefore does not pay income tax. If, however, the client sold the stock then transferred the proceeds to a fund at the Community Foundation, then the client would owe capital gains tax on the sale. Especially in cases where the client has held the stock a long time and it’s gone up significantly in value, the capital gains hit can be big.

  • Closely-held Business Interests – Our team is happy to work with you and your client to explore how your client might give shares of a closely-held business to a fund at the Community Foundation.

Not only will transfers be eligible for a charitable deduction during the year of transfer (and at fair market value if the shares are held for more than one year), but these gifts could also potentially reduce income tax burdens triggered upon a future sale of the business. Be sure to talk with our team well before any potential sale is in the works; otherwise, you could lose out on tax benefits. Gifts of closely-held business interests are powerful but can be tricky to administer.

A lot of people don’t realize the impact a QCD can have on a taxable estate and the high taxed aspect of an IRA. It is a really underutilized tool that can really make an impact.

Julie Dais

Director of Development and Professional Advisor Relationships, Oklahoma City Community Foundation

  • QCDs from IRAs – As always, keep in mind that the Qualified Charitable Distribution (QCD) is a very smart way to support charitable causes.

If your client is over the age of 70 ½, they can direct up to $105,000 from an IRA to certain charities, including a field-of-interest, designated, unrestricted or scholarship fund at the Community Foundation. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means your client avoids income tax on the funds distributed to charity. We can work with you and your client to go over the rules for QCDs and evaluate whether the QCD is a good fit.

  • Real Estate – Your client’s fund at the Community Foundation can receive a tax-deductible gift of real estate, such as farmland or commercial property, in a variety of ways.

An outright gift is always an option; lifetime gifts of real estate held by the client for more than one year are deductible for income tax purposes at 100% of the property’s fair market value on the date of the gift, which also avoids capital gains tax and reduces the value of your client’s taxable estate. Other ways to give real estate include a bargain sale or a transfer to a charitable remainder trust, which produces lifetime income for the client and the client’s family.

  • Life Insurance – Don’t overlook life insurance as an effective charitable giving tool.

Life insurance can be used charitably, whether by naming a client’s fund at the Community Foundation as the beneficiary or, in the case of whole life policies, naming the fund as beneficiary and transferring the policy itself. If your client transfers a policy, they may be able to make annual, tax-deductible contributions to the Community Foundation to cover the premiums.

  • Other “Alternative” Assets – The Community Foundation is happy to work with you and your clients to explore options for giving other non-cash assets to funds at the Community Foundation, including:

*Oil and gas interests  *Negotiable instruments *Cryptocurrency *Artwork *Collectibles

The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.