Charitable Contribution Guidelines - How to Maximize Your Impact

Remember the adage “It’s better to give than to receive”? If your financial goals include giving to causes that are important to you, you can strategize to make the greatest impact while potentially receiving tax savings, too.

A qualified charitable organization is any organization created and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes that meets certain other requirements and is tax-exempt under Internal Revenue Code Section 501(c)(3).

Ground rules for giving:
Request a receipt if you donate $250 or more to a single charity.
Get an independent, written appraisal for gifts of property over $5,000.
Subtract the value of any benefits you received for your donation before you deduct it.
Itemize your deductions on your tax return.

Different types of property donations offer varied tax advantages and drawbacks.

You can deduct transportation costs and other expenses related to volunteering. However, the value of volunteer time isn’t deductible.

You can donate almost any item related to the charity’s mission; it’s usually fully deductible based on its current reasonable value.

There are limitations on ordinary income property and short-term capital property calculated according to the asset’s cost basis (fair market value minus the ordinary income or short-term capital gain that would have been realized).

You can usually deduct the fair market value of appreciated long-term assets that you’ve held for more than one year—i.e. stocks, bonds, mutual funds, or real estate. An additional benefit is you don’t have to recognize any gains on the donation, resulting in no capital gains tax.

Donating long-term assets instead of cash can be a very effective and tax-efficient way to support a charity. If your assets have appreciated, you increase the amount of your potential deduction and your gift by contributing the securities directly to the charity instead of the cash generated from selling them.

There is no “one size fits all” strategy for charitable giving. Choosing between cash, appreciated securities, and other strategies depends on your unique personal factors. Charitable giving can quickly become complex. Talk to your tax advisor before deciding on your giving plan.

Gifts of cash or appreciated investments can be given directly to a charity. However, it often makes sense to consider specialized charitable vehicles to make giving easier and to manage the tax benefits.

Donor-advised funds (DAF) allow you to donate appreciated long-term stock and receive a current-year tax deduction. You can then grant those assets out over time and invest the remaining holdings so they can grow for future grants to worthwhile charities.

Suppose you prefer to leave assets to charity but also earn income for a period of time.
In that case, a charitable remainder trust (CRT) or pooled income fund is worth exploring.

If you’re 70½ or older, you can donate a qualified charitable distribution (QCD) tax-free from an IRA directly to a qualified charity. A QCD can be used to donate up to $100,000 per year. If you’re married, each spouse can do this. A QCD must be made directly from the IRA trustee to the charity. If you withdraw funds and then donate to the charity, that withdrawal will be taxed. If you are age 73 and must take a required minimum distribution(RMD) from your IRA, a QCD can count toward the RMD for that year. You do not have to itemize to receive the tax benefit from a QCD. The benefit is automatically received by lowering your taxable income.

Just remember that to receive a tax benefit, you must make the charitable gift by the last business day of the calendar year.

If an IRA owner wants to make charitable contributions upon their death, the most tax-advantaged way is to name a charity as a beneficiary of the IRA. As a named beneficiary, the charity will not have to pay taxes on the proceeds.

Each of these donation strategies and vehicles offers different benefits, but in the end, what really matters is helping an organization that matters to you—the tax benefits from a donation are just icing on the cake. So, compare your options and talk with a financial planner or tax advisor to help determine the best way to give for your particular situation.