During the last quarter of each year, most of us experience an increase in the volume of letters, phone calls and emails requesting charitable contributions.

This happens because charities recognize that many donors wait until the end of the year to make their gifts. If you are among them, here are some suggestions to make your giving more tax-efficient:


Donate Appreciated Securities vs. Cash.

If you own stocks, exchange-traded funds (ETFs) or mutual funds which have significant long-term capital gains, you should consult with your investment advisor about the possibility of contributing some of these shares to your favorite charities. If you have held the shares for at least one year, you can transfer them to a public charity and deduct the full fair market value from your taxes and avoid paying taxes on your gains.

By contrast, if you sell the shares and then donate the cash to charity, you will still receive the charitable deduction but you will have to pay taxes on your gains.


Bundle Multiple Years of Giving to Maximize Deductibility

Because the amount of the Standard Deduction was doubled, you may find that your charitable gifts are no longer deductible. If that is the case, consider bundling your charitable giving into one year so it exceeds the amount of your Standard Deduction.

This can be a particularly good strategy if you want to create a donor-advised fund (DAF). By creating a DAF, you can recommend grant distributions to your favorite public charities on the timeline that matches your normal giving schedule. In addition, you can always contribute more money to your DAF in years when your income is greater and you need a bigger tax deduction.


Make Gifts from Your Individual Retirement Account (IRA).

If you are 70½ or older and have an IRA, you have the option of making tax-free gifts of up to $100,000.00 annually directly from your IRA to qualifying charitable organizations.

When you make a Qualified Charitable Distribution (QCD) from your IRA, you do not receive a tax deduction for your contribution. However, the good news is you will not be taxed on the amount distributed from your IRA either since the QCD goes directly to the charity and the full amount of the QCD qualifies as part of your mandatory required minimum distribution (RMD).

This option benefits taxpayers at all income levels since the distribution is not included in the individual’s taxable income, which may lessen the impact on other tax credits and deductions, including Medicare and Social Security. Please note that the qualifying charitable organization may not be a private foundation, DAF or supporting organization.

All of these tax-wise giving strategies can take several days to complete and some charities maintain different hours during the holidays. Consequently, we strongly recommend contacting your advisor several weeks in advance to ensure the completion of your gifting prior to the Dec. 31 deadline.

Related Articles