It’s that time of year again, when many people add charitable giving to their busy holiday to-do list. Year-end giving can come with great benefits, of course, and now is a good time to refresh on some highlights, as well as finer points that can get donors in trouble. An article in this week’s Wall Street Journal article gives some solid pointers on giving options to consider—and snags to avoid.
- Consider stock donations. This is a good year to give away appreciated stock, given 2013’s combination of stock price boosts and tax increases. But, as always, avoid giving away stocks that are worth less than you paid for them—those should be sold instead with proceeds then donated to charity, so that losses can be used to trim taxes.
- Take advantage of IRA opportunity. Those who are 70½ or older can transfer as much as $100,000 from an individual IRA to a qualifying charity, without that amount being included in their income. In addition, the transfer counts toward their required minimum distribution. While the transfer is not deductible, it isn’t included in income and as such won’t increase adjusted gross income (which can lead to phase-out of deductions and exemptions, and potentially increased taxes). It isn’t clear whether this benefit will be extended beyond this year, so check this one off the list now!
- Look into donor-advised funds. These funds come with some great advantages, including a current tax deduction and the flexibility to recommend gifts to charities in the future (i.e., not all money donated to a fund this year needs to be paid out to charities this year). But be sure to shop around and make sure the organization’s policies are a good fit—many organizations offer donor-advised funds that vary in terms of minimum donation amounts, ability to name successor advisers, and associated fees.
- Make sure to get receipts. Donations of $250 or more require a contemporaneous receipt from the IRS that acknowledges the gift and whether the charity gave the donor anything in exchange for the donation—and if so, a good faith estimate of its value. Gifts of property can carry additional requirements; see IRS Publication 526 for more information.
The IRS also has issued some year-end giving guidance, which includes reminders about some basic requirements:
- Contributions are deductible in year made. This means that a donation made by credit card before year-end is deductible this year, even if the credit card bill isn’t paid until 2014.
- Recipient must be eligible charity. Use the IRS Exempt Organization Select Check feature to confirm 501(c)(3) status and whether an organization is a public charity or private foundation—though keep in mind that churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed.
- Taxpayers must itemize to take advantage of charitable deduction.
- Keep in mind requirements for certain donations. For example, donations of vehicles often will be limited to the price a charity receives for selling it (rather than fair market value). And donations of clothing or household items need to be in good used condition or better.
All in all, year-end giving allows you to combine financial planning with the altruistic spirit of the season, and opportunities abound!