With the holiday season in full swing, it’s a great time of year to focus on giving back. Maybe you’ve been meaning to contribute to your favorite charity, or you know you want to give back, but you aren’t sure how, or to whom, you want to donate. No matter which stage you’re in, there are plenty of options for gift-giving as the year winds down. And there are some extra perks in it for you, too.
Donating to charity can do more for your wallet and future taxes than you may realize. Besides feeling good about helping others, you could see a decrease in your taxes now, as well as a substantial decrease in your taxable estate, depending on the size and type of gifts you hand out.
I’ve put together a short list options that could help you make the most of charitable giving this year.
The simplest option is to gift money or assets to a charity of your choice. Just make sure you save a receipt or some other form of proof from your chosen organization. For any gifts over $250, you must have a written acknowledgement of your donation in order to earn your tax deduction.
Give Appreciated Assets
If you are thinking about selling stocks to gift cash, consider gifting the stocks themselves instead. If you were to simply sell appreciated stocks, you’d be stuck paying capital gains taxes on that interest. Gifting those stocks directly to charity can help get you a tax deduction and avoid paying a capital gains tax on any interest that’s accrued since you bought them. However, if you are thinking about gifting stocks that have depreciated, it might be smarter to sell them and gift the cash. This way, you prevent further losses for the gift receiver, and you can take advantage of that capital loss to help offset any potential capital gains taxes for the year.
One piece of advice here: Make sure you submit your donation in writing with your brokerage dealer or bank at least a week before December 31, so it is processed before the end of the year.
Give Through a Donor Advised Fund
Now, if you’re thinking that you would really like to donate, but you aren’t sure where to just yet, using a Donor Advised Fund (DAF) could be the right choice for you. This option functions similarly to opening a private foundation, but without all of the overhead costs and managerial headaches. With a DAF, you can transfer your assets now, watch them grow and then decide at a later date which organization you’d like to grant those donations to.
By using a DAF, you can get an immediate tax deduction for any assets you transfer to the fund, and you free your estate of any capital gains those assets will collect, or have already collected. These tax advantages make DAFs a great choice for end-of-the-year giving, especially if you’re still weighing your options on which causes to support.
Giving back is a great way to make an impact on your community and people in need, and those gifts can give right back come tax season. If you’re having a hard time deciding on which form you want your charitable gift to take this year, talk it over with your tax or financial advisor. Together you can find a way to maximize your money’s effect on those in need, and on your own bottom line.
This article was first published on 11/20/2017 in the Des Moines Register.
CFP®, MBA, Series 7 Securities Registration,1 Series 66 Advisory Registration, † Life & Health Insurance License As a CERTIFIED FINANCIAL PLANNER™ professional, Jim brings an extensive retirement income planning background to the team. He regularly writes a personal finance column for The Des Moines Register’s Business...Read More