By Jeff Burrow, CFP®, CRPS®, AIF®
Giving to charity is an incredibly rewarding experience for everybody involved, but writing a check isn’t the only way you can help out. There are so many great options available to those of you who want to donate to a cause that is close to your heart other than giving cash.Of course, giving to charity is not only personally satisfying, the IRS (and possibly your state) also rewards you with generous tax breaks. Here are just some of the tax considerations:
● Current income tax deduction if you itemize, subject to certain percentage limitations for any one year
● Tax benefit received reduces the cost of the donation (e.g., a $100 donation from someone in a 30 percent tax bracket has a net cost of $70)
● Reduces or eliminates capital gains tax if appreciated property is given
● No transfer (gift and estate) taxes imposed
● Removes any future appreciation of the donated property from your taxable estate
This is the easiest thing to give — and it’s the type of donation most charities like best
- Be sure to get a receipt or keep a bank record, regardless of the amount.
Donate your Investments
Donating appreciated mutual fund or stock shares is an excellent way to give back to your favorite charity and beneficial for the person donating as well. As long as the share funds were purchased over a year ago, you can donate it to a charity of your choosing who will receive 100 percent of the amount you donate. Even better, they will not have to pay any taxes when they sell the shares. Furthermore, you will not have to pay the tax bill either, but still get to deduct the entire amount (based on your personal tax return eligibility) when you file taxes. However, this strategy doesn’t work to your advantage if a stock has lost value over time, in which case you would probably be better off selling it yourself.
Donate Various Types of Property
Other than holdings from your personal investment portfolio, there are other types of property you may not have considered donating, such as:
● Highly appreciated or rapidly appreciating property:
- Real property (e.g. investment real estate, rentals, vacation property, etc.)
● Income-producing property
- Artwork (if given by the artist)
- Section 306 stock (stock acquired in a nontaxable corporate transaction)
● Tangible personal property
● Remainder interests in property
- Lets you use the property, or income from the property, until a later date. Gift and estate tax deductions are not allowed unless a trust is used. You may only take the income tax deduction in the year that the gift is actually conveyed.
Caution: You may need to have certain types of property appraised.
Donate Money that is in your IRA
Individual Retirement Accounts (IRAs) can also be used to donate to charity, but only if certain criteria are met. Starting in 2006, any IRA owner who is age 70 1/2 or older can transfer up $100,000 per year, tax-free, to any eligible charity. These types of donations are used for distributions from IRAs, independent of whether or not the owner has itemized their deductions. Donating with an IRA can lead to lower taxable income because the distributed amounts can be excluded. However, not every charity is eligible for this type of donation and it seems that every year the government is late in extending this option, so make sure your charity qualifies and that it is still allowed before making the donation.
Donate your Time
There are several other ways to give to charity without donating cash such as volunteering your time, donating material goods, or by simply raising awareness about a cause you are passionate about. Time is precious and nearly all charities need volunteer hours more than anything else. Volunteering allows you to connect and give back to members of your community which can be a richly rewarding experience.
If you don’t have a lot of time to spare, then you can collect gently used goods from friends and family and donate them to a local charity. Many charities are in constant need of items such as clothing, food, and electronics. Or, you could hold a local garage sale and donate the proceeds as well.
Spread the Word
Lastly, raising awareness can be incredibly beneficial for charities because the more people hear about their cause, the more donations they receive. You can start a blog or create social media accounts to spread the word about your favorite charity.
Charities that support causes near and dear to your heart need your support. If you have questions about how your financial situation may be able to contribute toward the prosperity of your favorite charity, please don’t hesitate to contact Jeff Burrow, CFP®, CRPS®, AIF®, Managing Director of United Capital’s Modesto, CA office. United Capital is a wealth management firm that uses a revolutionary process to help improve the lives of our clients. We call it Financial Life Management. Jeff can be reached at (209) 579-5900 or firstname.lastname@example.org.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Prepared in conjunction with Broadridge Investor Communication Solutions, Inc. Copyright 2019.
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