By Jeremy Wells, Senior Vice President of Philanthropic Services

In recent years, you may have encountered scenarios where your clients come to you for advice after receiving a larger than typical infusion of income.

Having a strategic approach to giving allows donors to maximize the amount they can share with their favorite nonprofits and minimize income taxes. Research shows that people do not give because of the associated tax benefits, but a large windfall or liquidity event often creates an opportunity to consider giving in a more significant way. It can also create a sense of urgency to give in a particular tax year.

Consider these high-income triggers:

• Rebalancing of a non-qualified stock portfolio
• Sale of a business
• Sale of real estate
• Employment bonus income
• Receipt of deferred compensation
• ROTH IRA conversion

All of these events can significantly increase taxable income.

They can also trigger a 3.8% Net Investment Tax (NIT) on investment income and Alternative Minimum Tax (AMT). It is important to remember that if your client is subject to AMT, some itemized deductions – such as mortgage interest and state and local taxes – could be eliminated.

A charitable income tax deduction may lower income enough to be able to avoid or minimize both NIT and AMT.

If your client experiences a much higher than usual income in one year, it may be a great idea to consider sharing some of that extra income with their favorite causes to minimize income taxes as well. After all, the extra income gives them the ability to make a larger impact.

Unfortunately, you or your client may not have enough time before the end of the year to decide:

• Where your client wants to give
• How much your client wants to give to a particular institution
• Whether your client’s favorite nonprofits can accept various assets (including non-cash assets)

That's where a donor advised fund may help.

*Cash gift deduction limitation reduces to 50% of AGI beginning in 2025.

The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

Jeremy R. Wells serves as senior vice president of Philanthropic Services at the Saint Paul & Minnesota Foundation, Minnesota’s largest community foundation. In this role, Jeremy serves as the chief fundraising and donor stewardship strategist. Jeremy has spent his entire career working in philanthropy. He holds both a master’s degree in philanthropy & development and his CFRE certification. Jeremy is an adjunct faculty member at the University of St. Thomas and is a frequently requested speaker and author on a variety of philanthropic topics, including development planning, utilizing volunteers, donor engagement, stewardship, ethics and charitable gift planning.