The last month of the year is when charitable organizations ramp-up their requests for donations.
If you’ve had a good year, or, simply a better year than most, you may be feeling the urge to give back – but to whom and how? Here’s a quick primer on charitable giving.
First, some overall rules: In order to deduct donations on your 2013 taxes, your donation must be made by December 31st of this year, to an IRS qualified charity, and you should always get a receipt.
Not Feeling Especially Flush with Cash, but You’d Like to Give Back?
Donations come in many shapes and sizes. You can donate gently used clothing, household goods or your time. You’ll be able to deduct the fair market value of the items you give.
It’s December 31st and You Want to Make a Last Minute Contribution.
If you know the charity you’d like to donate to, you can make donations by credit card up to December 31st and still get a deduction in 2013.
If you would seriously like to make a donation, but, you’re unsure of a reputable charity, and don’t have enough time to do your research, look into a Donor Advised Fund. A Donor Advised Fund is a public charity that allows you to make a donation now, and then direct it to the charity of your choice at a later date. You get the tax deduction in the year that you make the contribution to the Donor Advised Fund, and precious time to finish your research.
You Want to make the Most of Your Tax Deduction
What type of asset you give to a charity can impact your taxes now and in the future. Here are three examples:
Cash. Donating cash can be the simplest form of donation. The deductible amount is simply the amount donated less the value of any services received in return.
Appreciated Assets. A second type of donation to consider is appreciated marketable securities. Donating securities that have a long-term capital gain allows you to deduct the total market value at the time of donation while saving yourself the capital gains taxes that you would have paid had you liquidated the securities. The charity gets a solid investment (that they can liquidate with a different tax preference, if they’d like) and you get a significant tax deduction.
Tax-deferred Assets. A third category of assets to donate are tax-deferred assets such as money in an IRA. For estate planning purposes, an individual who has significant taxable and tax-deferred assets may find it beneficial to donate the tax-deferred assets to a charitable institution while saving the taxable assets to pass on to their heirs. Tax-deferred assets can incur some heavy taxation when passed on to the next generation, but little or none when passed to a charity. Taxable assets, on the other hand, enjoy a step-up in basis when passed on through a will or trust, significantly reducing capital gain exposure.
If you need help with any of these suggestions, contact us.
Sound confusing? It can be.
The best bet is to start fresh next year with a Charitable Giving Plan.
Begin with a vision of what type of goals you would like to reach through your philanthropy. Use this to create a list of institutions that help you reach that goal. It is critically important to conduct due diligence on charitable organizations by researching and comparing their practices, administrative costs, and investment methods. From there, a serious review of your finances will give you a clear picture of how much you are able to donate and how you might like to spread those contributions throughout the year.
If you’re still unsure of how to implement a plan that helps you reach your charitable goals, contact us for assistance.