By Peter Mastrantuono
Last year, Americans gave over $292 billion to charitable causes, according to Giving USA. December is the biggest month for making charitable donations, with 31% of annual giving occurring in the last month of the year, according to Charity Navigator.
In most instances, charitable giving is a simple act of generosity, but donors need to be mindful of certain tax and planning considerations.
From a tax perspective, fewer Americans can expect to receive a tax deduction for their charitable contributions since the 2019 standard deduction was raised to $12,200 for single filers and $24,400 for married taxpayers, filing jointly.
Cash gifts, of course, are the fastest and most tax-efficient way to make donations, but there are other ways to give, such as donations of securities or tangible property, like art or real estate.
When contemplating a gift funded by securities, it may be smarter to donate the stock rather than sell it and donate the cash proceeds. Here’s why: If a stock has an unrealized gain and it’s sold, the donor will be required to pay a capital gains tax. However, if he or she donates the stock, the full market value of the donated stock may be deductible, and no capital gains tax will be incurred by the donor.
When making a gift of art, collectibles and real estate, donors will need to file a Form 8283, and if that donation is valued above $5,000, it will require an independent appraisal. Donated items need to be in good working order.
Donations of property, like stocks, are deductible only to the limit of 30% of a taxpayer’s Adjusted Gross Income. Cash donations are deductible up to 60% of Adjusted Gross Income.
From a planning perspective, there are several strategies that may make charitable giving more tax efficient.
The first strategy applies to IRA owners age 70.5 and older who face Required Minimum Distributions. For many such accountholders, the income they are forced to take from their IRAs is not needed for living expenses, creating an unwelcomed taxable event. To avoid this, an IRA owner over the age of 70.5 may make a direct donation to a qualified charity from his or her IRA up to $100,000. This donation, though non-deductible, serves to meet an individual’s Required Minimum Distribution obligation (up to $100,000) without owing any income taxes.
Another strategy is to make donations to a Donor-Advised Fund, which is similar to a mutual fund but is structured as a qualified charitable organization. One benefit of giving to a Donor-Advised Fund is that individuals can make donations, receive an immediate tax deduction and wait on selecting the charity that will ultimately receive the funds.
In their rush to meet the calendar-year deadline for 2019 charitable donations individuals should be clear on several important points: That they are contributing to a qualified charitable organization—scams are plentiful this time of year—(the IRS offers an IRS Select Check tool to help); the charity is effective in its mission (Charity Navigator rates charities); receipts of donations are received; and they consult with a tax advisor, especially with respect to more complicated issues such as property donations and direct IRA charitable donation reporting.
Peter Mastrantuono is a contributing writer to http://www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.