If you read my blog regularly (and you do, right?) this article will sound familiar. That’s because many Americans make the bulk of their charitable contributions in December, and I addressed the topic last year. It is timely, though, and likely bears revisiting.
If you itemize deductions on your tax return, you know that you must make your charitable gifts by December 31 for them to qualify as deductions in this tax year, so timing matters. So do other considerations when you are giving YOUR money to make a difference.
Here are some tips for making the most of those contributions and for ensuring you are maximizing tax benefits.
Tip #1: Pay attention to the calendar and know for whom it must be December 31.
What do I mean by that? December 31 is December 31, right? Well, sort of. The IRS says that control of the gift must have been relinquished by December 31 for it to be a 2023 charitable gift, and how they define that differs for different forms of contribution.
If you write a check, it’s not the date on the check that matters. It’s the date you either mail it, which is considered the date of the postmark, or the date it is hand-delivered to the charity. If you mail the check on January 2, it won’t matter that the check is dated December 31; it will likely be considered a charitable contribution next year.
When you make a gift by credit card, it’s the date that the amount posts to your credit card account. If using a printed remittance card from the charity to make your credit card gift, remember that sometimes staff at the charity get some time off around the holidays, and their volume of mail is significantly greater at year-end. It may take some time for them to process the charge. If time is tight, it’s better to make that credit card gift online where it may be processed automatically and post within one or two business days.
Tip #2: Consider giving appreciated assets, rather than cash.
For those larger charitable gifts, it may be wise to give appreciated assets – especially publicly traded securities, such as stocks or mutual funds. If you itemize and you owned the stock for longer than a year, you may be able to claim a charitable deduction for the full fair market value of the stock, and you avoid paying tax on the gain. As of this writing, the S&P 500 is up more than 23% for the year, so it’s worth taking a look at your taxable portfolio. You may well have securities that are worth significantly more than you paid for them. If so, putting that value to use for a cause you care about may be a meaningful, tax-wise way to take advantage of those long-term gains.
Tip #3: If you are 70 ½ or older, consider a qualified charitable distribution from your IRA.
While it’s not tax-deductible, a qualified charitable distribution made directly from your IRA account to charity keeps it from being taxable income to you, and it can count toward your required minimum distribution for the year. There are limits ($100,000 total per year) and rules (these gifts can’t go to a donor advised fund or private foundation, for instance), so check with your tax advisor if you are considering this for the first time, or for a new charity if you’ve done it before.
Tip #4: Consider, or re-consider, your charitable choices.
I’m not suggesting your choices have been bad ones. But if you always give to the same organizations year after year, it may be time to step back and consider what you want to accomplish with your philanthropic investments. Are these the organizations that make the change you’d like to see. Are there others that you might wish to add?
A simple Internet search can help identify organizations doing work in the areas that matter most to you. You can also research individual charities on their websites and through sites such as Charity Navigator, GuideStar and GiveWell. Speak with staff and board members at local organizations to learn more about what they do and the impact they have in your community. A qualified philanthropic advisor can assist, too.
Tip #5: Always, always, always consult with your professional tax advisor if you are considering a larger gift than usual, or a gift made in a new way for you.
Your circumstances may influence the wisdom of these choices. You are contributing charitably because you want to make a difference, and being informed about the financial implications for you and your family helps you make the best decisions overall.
Whatever your year-end giving choices, may your generosity bring you joy during the season and throughout the year. Happy holidays!
Disclaimer: This information is not intended as legal, tax, or financial planning advice. Readers should consult with their own professional advisors before making any charitable gift.