December 31st is December 31st, right?
If you are like many Americans, you make the bulk of your charitable contributions in December. It’s the season of giving, as well as the season of multiple charitable solicitations showing up among the holiday cards in your mailbox. And if you itemize deductions on your tax return, you know that you must make those charitable gifts by December 31 for them to qualify as deductions in this tax year.
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 2022 charitable gift, and how they define that differs for different forms of contribution.
When 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 making a gift by credit card, it’s the date the charge posts to your credit card account. If you use 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, too, 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 immediately or 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 shares 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. I know, I know; the markets are down this year. But you may well have securities that are still worth significantly more than you paid for them. 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 (without passing through your hands first) keeps it from being taxable income to you. It can also 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 first if you are considering this for the first time.
Tip #4: 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, such as those described in tips #2 and #3 above.
Your circumstances may influence the wisdom of these choices, and while any charitable gift should be made because you want to make a difference, you should be informed about the financial implications for you and your family.
Whatever your choices in year-end giving, may your generosity bring you joy during the season and around 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.