Your tax return may be about to remind you just how good it was.
Did you sell a business or investment this year? Realize a significant capital gain? Receive an unusually large bonus? Or look at your projected income and think, I could really use another deduction before December 31?
If charitable giving is already part of your plans, this is a good time to stop and think about how you give, not just how much.
A little planning before year-end can sometimes allow you to accomplish your charitable goals while also improving your tax picture. Before you simply write another check, here are a few questions worth asking.
Do you own appreciated stock? If you own publicly traded stock that has increased substantially in value, donating the stock itself may be more advantageous than selling it and donating the proceeds.
If you sell appreciated stock that you have held longer than one year, you may owe capital gains tax on the increase in value. By donating qualifying appreciated securities directly to a charity, you can generally avoid recognizing that capital gain and are likely eligible for a charitable deduction based on the stock’s fair market value.
That means more of the asset’s value may ultimately go toward the charitable work you want to support.
Do you need the deduction this year but haven’t decided where you want the money to go? That is one of the situations where a donor advised fund can be particularly useful.
You can make an irrevocable charitable contribution to the donor advised fund now and receive the charitable deduction for the year in which you make the contribution. You can then take your time recommending grants from the fund to charitable organizations in the months or even years ahead.
For someone who has had an unusually high-income year, that can be especially valuable. You don’t have to rush in December to choose several charities simply because the calendar is running out. You can separate the tax decision from the charitable decision.
Cobb Community Foundation offers donor advised and other types of charitable funds and is happy to help you think through whether one makes sense for their charitable goals.
Are you required to take a distribution from your IRA this year? If you’re age 70½ or older, don’t overlook the Qualified Charitable Distribution, or QCD. A QCD allows eligible IRA owners to direct money from an IRA straight to a qualifying charity. If you’re already subject to Required Minimum Distributions, the QCD can count toward satisfying that requirement.
The key distinction is that you do not receive a charitable deduction for a QCD. Instead, the qualifying distribution is excluded from taxable income. For many people, keeping that distribution out of income can be especially valuable.
One caution: QCDs generally cannot be made to donor advised funds, so be sure to talk with your tax or financial advisor and make sure the gift is structured correctly.
What if you know you want to give, but you aren’t sure where? That is a common challenge, especially at year-end. There are many worthy organizations doing important work, and most donors cannot know them all.
You might ask a community foundation for guidance based on the causes you care about. You might also consider a collaborative giving opportunity.
Here in Cobb, for example, Match Magic brings together 31 local nonprofits that have gone through a community-based application and selection process. Donors can give directly to any of the participating organizations or contribute to the Match Pool, which provides additional funding across the campaign.
For someone looking for a meaningful destination for a year-end gift — or an eligible QCD — it can be a simple way to support a range of needs close to home.
Finally, don’t wait until December 31. Gifts of securities, QCDs and other non-cash gifts can take longer to process than writing a check or making an online contribution. Starting the conversation with your CPA, financial advisor, IRA custodian or charitable organization earlier gives everyone time to make sure your gift is completed properly before year-end.
The best charitable planning starts with what you want your money to accomplish. Tax benefits shouldn’t determine whether you are charitable, but if you are already planning to give, there is no reason not to be thoughtful about how you do it.
Before you write that year-end check, ask one more question: Is there a smarter way for me to give? To learn more, contact Cobb Community Foundation at 770.859.2366, or at ccfteam@cobbfoundation.org.
