With the end of 2013 approaching, many of our clients are thinking about what charitable gifts they want to make. Here are a few tips on giving effectively and maximizing the tax deductibility of your gifts.
Keep the Calendar in Mind
For tax purposes, donations made by check can usually be deducted if they are postmarked by December 31; however, if you are making a large donation, check with a tax advisor since industry practices often dictate that checks must be received by the charity and cashed before the end of the year. The IRS requires donations in excess of $250 to be documented more extensively, and you must provide the name of the organization, donation amount, and whether you received any goods or services from the charity in exchange for the donation.
Online donations are processed instantly. You may want to consider making last-minute donations by credit card instead of by check if you are concerned about the timing of your gift. (*Eight Tips for Deducting Charitable Contributions by the IRS)
Avoid Giving Cash
In order to deduct charitable gifts on your taxes, all donations must be substantiated by a receipt, cancelled check, or written acknowledgement by the charity (*Eight Tips for Deducting Charitable Contributions by the IRS). If you frequently give cash to organizations that solicit in front of supermarkets, malls, or local stores, you may be losing out on a major deduction. Consider supporting these organizations by writing a single check or asking for a receipt for each cash donation.
Consider Alternative Sources of Gifts
Not all donations need to come from your checking account. If you are subject to Required Minimum Distributions (RMD) from your IRA, you can still make qualified charitable donations (QCD), which will count towards your annual RMD amount and will also be excluded from your 2013 taxable income. IRA owners can distribute and exclude from their income up to $100,000 in direct donations to qualified charities – typically, those that meet IRS 501(c)(3) regulations. The QCD provision will expire at the end of 2013 unless Congress takes action to extend it.(*Charitable Donations from IRAs for 2012 and 2013 by the IRS) Another option for taxpayers is to give appreciated securities, which will qualify for tax deductions at their full fair market value.
One of the best ways that you can make an impact in your community is to donate to local organizations or community foundations. Community foundations focus on local needs and can help you identify those areas and show you how to make the greatest impact with your gift. Even small contributions can make a big difference to charities like food banks, homeless shelters, and animal welfare groups. In addition, many community foundations now have donor-advised funds that can help simplify the donation process. (If you live in the Findlay, Ohio area, you will want to check out The Findlay Hancock County Community Foundation)
Research Charities Carefully
New charitable organizations open their doors every day, and it’s wise to scrutinize potential gift recipients carefully before making a donation. Online tools like CharityNavigator.org or GuideStar.com are a great way to check out the legitimacy of organizations and ensure that your donations will be used as promised. It’s usually wise to avoid donating to organizations that rely on paid fundraisers since those (for-profit) fundraising firms often receive a significant percentage of the funds donated.
Best practices for charitable giving:
- Clarify your beliefs and donation objectives
- Research organizations carefully to ensure legitimacy and tax status
- Make sure their mission aligns with your values
- Give proactively (not necessarily in response to appeals)
- Avoid the middleman and make donations directly to the organization or foundation of your choice
- Trust your instincts
- Don’t give cash and always document your donations
- Consider developing a long-term relationship with charities that are a good fit for your values
We encourage our clients to give when they can. In the words of Winston Churchill: “We make a living by what we get. We make a life by what we give.” We hope that you’ve found this letter useful in helping maximize the value and impact of your philanthropy.
If you have any questions about the information we’ve presented or would like more information about charitable giving, please contact us, we’d be delighted to lend a hand.