Tools to Help Realize Your Year-End Charitable Giving Goals
With the holiday season upon us, we often feel compelled to evaluate, and frequently to increase, our charitable giving. This time of year, we typically are reminded that giving to others can be personally fulfilling in a multitude of ways. In many cases, our deepest values guide us to give back to our communities, supporting the causes that we hold most dear and where we can hopefully make an impact.
In 2018, several changes to the tax laws went into effect, some of which directly impacted charitable giving. One positive change to note is that the tax code now allows cash gifts up to 60 percent of adjusted gross income (AGI), up from 50 percent under the old laws. Gifts of appreciated stock are still limited to 30 percent of AGI, but contributions can be carried forward for six years if you are not able to use all of the tax benefit in the year the contribution is made. However, the carry-forward rule only applies if you are itemizing deductions, so if you take the standard deduction, you cannot carry over charitable donations. In addition, the new tax laws have changed the qualifications for individuals to itemize their deductions. The standard deduction was increased, and many previously allowed itemized deductions were eliminated, which means that many people need more charitable contributions to itemize.
To help you realize the greatest benefit for the charitable contributions you make, consider the following strategies:
Load up on contributions
You may want to consider increasing your contributions to nonprofits this year, increasing the amount you contribute in 2019 to include donations you would typically make in 2020, so that you exceed the standard deduction and maximize the benefit of your generosity. Then next year, in 2020, you can claim the standard deduction.
Give to a Donor-Advised Fund
Donating to a Donor-Advised Fund (DAF) allows you to take a tax deduction for contributions to the account in the current tax year, even if you don’t distribute money from the fund to charities until future years. This can be another great way to “load up” contributions in one year but retain the flexibility to distribute them to charities at a time you prefer, even over multiple years. They are also easy to use, easy for record keeping, and inexpensive to administer. DAFs can be particularly powerful if you know you will be in a much higher tax bracket in the current year than in future years, so that the charitable deduction comes at a time most advantageous to you. In addition, gifting appreciated stock to DAFs is a way to further maximize your tax benefits.
Make a Qualified Charitable Distribution (QCD)
QCDs are non-taxable charitable contributions made directly from an IRA. They have been around for a while, but they have increased in popularity in recent years due to the tax law changes. Individuals who are charitably inclined and are required to take a Required Minimum Distribution (RMD) from their IRA can make a Qualified Charitable Distribution (QCD). A QCD is a non-taxable distribution from your IRA directly to a qualified charity, which still counts towards your RMD. When making a QCD election, the amount you select will not be added to your adjusted gross income. Keep in mind, the amount you contribute is limited to $100,000 and you cannot make the distribution from SEP and SIMPLE plans if an employer contribution is made for that year.
Create a Charitable Trust
Charitable trusts allow donors to set aside assets for one or more charities. They can be great planning tools for individuals who own appreciated stock that they would consider donating to nonprofits if they could continue to receive the income from those investments.
Some additional items to consider including on your financial plan’s charitable giving to-do list before year-end:
Gift Appreciated Stock
Appreciated stock, rather than cash, can make an excellent asset to gift to charities. In addition to the tax deduction for the value of the stock you contribute, you do not have to claim the unrealized gain as income, therefore avoiding the capital gains tax.
Ensure timely completion of gifts
Make sure you complete contributions to DAFs, any QCDs and outright gifts by Dec. 31st. Custodians are already busy with an increased volume of requests as the end of the year approaches. If you wait too long, your contributions may not be completed in time.
Confirm that charities cash QCD checks by the deadline
QCD checks must be cashed by the charity prior to Dec 31st in order for the QCD to count in 2019. If the checks are not cashed by the end of the year, the RMD is income for 2019 and the deduction cannot be used until 2020. We recommend contacting the charity after you make the QCD so the organization can make sure to cash your check in a timely manner and by the end of December.
Coordinate cash or credit card donations
Charitable deductions are allowed in the year they are paid. This means that if you charge the donation on your credit card in 2019 but do not pay that credit card bill until 2020, you can still take the deduction in 2019. For checks other than QCD checks, the donations will count for the 2019 tax year, as long as they are mailed to the charity by December 31st.
Our financial plans are also guided by our values, so it is natural to incorporate your charitable giving goals into your financial framework. By working in one or more of the strategies mentioned above, you can develop an efficient giving strategy that will allow you to help maximize the way your investment dollars benefit not only you and your family, but also the charities you donate to.