3 Ways To Give To Charity At Tax Year's End
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Do want to make a large contribution to charity by year’s end?
Maybe you closed a big deal, your bonus was bigger than you expected, or you think your taxes will be lower next year. Whatever the reason, you want to be generous (and want the tax benefit).
The days are flying by and you wonder if you can get it done by the end of the year. You might be able to. Here are three ways:
- Give cash
Not literal cash. Write a check or transfer funds electronically to your charity. Your donation will be considered "timely" by the I.R.S. if made by year end (which means "mailed" if it's a check or "charged" if it's a credit card transaction.) If the organization is a qualified charity, and you get a receipt showing that they received your gift, then you may be eligible to get a tax deduction for your gift.
Keep that receipt with your tax records - a bank record or written statement from the charity - no matter the amount. If your gift is more substantial (over $250), you must keep a written receipt from the charity acknowledging the gift and detailing what property was donated.
- Give highly appreciated stock
If you have shares of stock or mutual funds with a low cost basis, donate them directly to a charity instead of selling them, paying taxes, and giving the funds. According to Geoff Germane, a Utah estate planning attorney, “Gifting appreciated assets is better than giving cash. If a donor gifts appreciated assets instead of selling them first and donating the proceeds, he or she avoids having to recognize income on the sale and, if giving to a public charity, can take the full-market value deduction for the value of the gift.”
Skip the “sell” step. Work with your charity and your financial planner or brokerage firm to transfer shares directly. You get the charitable deduction, and the charity sells the shares and keeps the whole amount. Since they are a not-for-profit, they won’t pay taxes on the gain.
If you use this strategy, your accountant will need to file an extra form — IRS Form 8283 — for non-cash contributions when you file your taxes.
- Give to a donor-advised fund
If you know the amount you want to give (and it’s over $5,000), but you haven’t decided the exact charity or charities you want to support, don’t sweat. Choose a donor-advised fund (DAF) and make the gift now but choose the charity later.
A donor-advised fund allows you to make a gift today and obtain a tax deduction, then make the “grants” to charities later. If you are giving at the end of the year, there can be a rush to get the paperwork done. Using a donor-advised fund can grant you extra time to separate the decision of “how much” and “to which charities.”
You can give cash or highly appreciated stock to a DAF.
Talk with your qualified tax advisor or financial planner to discuss your personal tax situation before executing any tax strategy.
One thing we can always count on is change. Tax laws will change. Our financial situations will change. But if you think you might be in a higher tax bracket today and you have the ability and willingness to give — and give big — you still may have time.
Nancy L. Anderson, CFP is a financial planner in Park City, Utah. You can find her on NancyLAnderson.com, Facebook, Twitter and Deer Valley Ski Resort Official Blog.