For many, December is the time to get out our checkbooks and make year-end gifts to the charities near and dear to our hearts. However, if you are considering a larger gift, a better strategy might be to put away your checkbook and pick up the phone instead. A look at your entire financial picture may reveal that it’s more beneficial to your bottom line to give a gift of appreciated assets over cash.
A gift of appreciated stock made directly to a charity gives you a dual tax benefit. You avoid paying taxes on the capital gains and you can write off the full value as a donation when you itemize your taxes, if you have owned the asset for more than one year.
Another option, if you are 70 or over, is to consider a transfer from your IRA directly to your charity of choice. Under the current law, individuals over the age of 70½ are able to transfer up to $100,000 from their IRAs to charity tax-free. The gift counts as their required minimum distribution (RMD) for the year, but is not included in their adjusted gross income. This can be a great way to avoid having to pay taxes on your RMD while supporting a good cause. Additionally, it provides a tax break even if you don’t itemize your deductions.
There are a few factors to consider, but a quick look at the market and a brief call to your financial advisor may help you get a bigger tax break on a gift you were already planning to make.
One final note: when considering a gift of stock, it’s best to start the process at least a week before December 31. Most investment firms require a letter of instruction or authorization to transfer shares to charity, and a mutual fund company may require you to complete a particular form.