For many, Thanksgiving begins the giving season. The holiday is a time to be thankful and to give to charity—whether that means volunteering to feed the homeless on Thanksgiving Day, or offering time, money, and physical goods to a worthy cause. In recent weeks, it’s been thrilling to see the outpouring of charity to non-profit organizations. Charities that support the environment, immigration, and equal rights for women and LGBT people have seen a swell of support—adding up to an unprecedented outpouring of donations. The Sierra Club saw a 400% increase in its average monthly donations in November, and the American Civil Liberties Union (ACLU) broke its own donation records this month as well, collecting $2.4 million from nearly 39,000 contributors.
If you’re feeling equally enthusiastic about giving this Thanksgiving, it’s a great time to put your money where your heart is. Major cuts in federal support for many of these non-profits may be in the works, and it’s likely that tax incentives for giving will decrease in the coming years. The good news: there are a number of ways you can maximize your giving immediately. Here are just a few ideas:
Donate from your IRA. Last year, Qualified Charitable Distributions (QCDs) from individual IRAs were finally made permanent. A great tool if you are overfunded in your IRA, a QCD allows you to donate up to $100,000 of your tax-deferred IRA savings annually—and the portion you donate qualifies toward your annual Required Minimum Distribution (RMD). Even better, it isn’t added to your Adjusted Gross Income for tax purposes, which strengthens your gift by enabling you to give even more.
To qualify, you must be 70 ½ or older on the date the donation is made, all funds must be transferred directly from your IRA to the charity (most charities are prepared and more than happy to assist with the paperwork!), and the transfer must be completed before you receive any other distribution toward your RMD.
Create a Donor-Advised Fund. If you have significant assets to donate today, this type of philanthropic fund allows you to receive a current-year tax deduction (under the current rates) while providing support for the charity of your choice for years down the road. Because any gifts to a Donor-Advised Fund are irrevocable, you receive the tax credit for the current year only. You also have the option of donating non-cash assets such as stocks or other complex holdings directly into the fund. This not only helps you avoid capital gains tax, but that savings enables you to give even more to the causes you’re helping to support. Your contribution is treated as a gift to a 501(c)(3) public charity, and you are allowed to deduct up to 50% of your adjusted gross income for cash gifts, and 30% for appreciated securities.
Once assets are gifted to the fund, the investments can be sold or reinvested for continued growth without generating any capital gain tax to you as the donor. And though you’ll receive the tax deduction right away (that means 2016 if you can pull it all together by year end), you can donate the account proceeds at any time—in the year the gift was made (and credited to your taxes) or in any subsequent year.
Donate stocks or other investments “in kind.” The Dow just broke yet another record this week, topping 19,000 for the first time in history. That’s great news—in part because there are substantial benefits when you donate appreciated securities directly to charity. When you sell your securities directly, you’re likely to get hit with some hefty capital gains tax, which can significantly reduce the funds you have remaining to gift. Luckily, there’s a way around this conundrum.
By donating your appreciated assets “in kind” to a charity, they receive the actual stock (or other assets), rather than the proceeds from the sale of the asset. As a result, you save the Federal capital gains tax and any state taxes. Benefits to you include a lower adjusted gross income (AGI), and the market value of the donation as an itemized charitable contribution. The charity benefits as well; because the gain on the security is tax-free to a qualified 501(c)(3) charity, the organization is able to sell the security tax-free. Leaving taxes out of the equation means more dollars to your beneficiary charity.
No matter how you give, deciding where to give is an important choice. There are numerous sites to help you research potential charities to be sure that they’re legitimate and that your dollars will actually be used to help your intended recipients. Take a look at Charity Navigator and Charity Watch to help you determine the best options. And when you do make a decision, I recommend making significant contributions to a select few rather than smaller contributions to many. Not only will your gift have a greater impact, but you’ll likely feel a stronger connection to the charities that matter most to you—and vice versa.
Of course, the most important thing is simply giving what you can, when you can, to the charities that matter most to you. Remember that every dollar makes a difference. In times like these, when certain causes are in greater need than ever, I hope you’ll consider giving what you can.
Need help setting up a donor-advised fund, QCD, or other vehicle for charitable donations? Please contact us right away to be sure we can meet the December 31 deadline. As always, I’m here to help.