As the year comes to an end and we hit the holiday season you may be in a giving mood. If that giving mood leads you to donating to a charity or non-profit organization then you clicked on the right blog. If you don’t want to make the traditional cash gift, then consider some of the alternatives.
Please keep in mind this article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your tax and legal professionals before modifying your gift-giving strategy.
Donor-advised funds. DAFs are essentially charitable savings accounts. Some are created and run by 501(c)(3) non-profits. Others are offered by brokerages and banks according to the IRS.
You can direct assets into a DAF for future charitable gifts. The bank, brokerage, or non-profit takes legal control of these assets, and may offer you investment choices for the assets and a selection of charities to which you may donate some or all of the assets in a given year. As a donor, you are eligible for a tax deduction in the year of the gift(s). If you like the general idea of “giving to charity” rather than to a specific charity, a DAF may appeal to you.
An important note on DAFs – DAFs are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. DAFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost.
Another idea is a Qualified Charitable Distribution or QCD. If you are taking Required Minimum Distributions from your Traditional IRA then you know how inconvenient that can be if you do not need the money. If you are looking for ways to potentially manage your tax bill, one choice is to donate your RMD to charity via a QCD. With the help of a financial professional, you arrange a direct payment of some or all of your RMD to charity (there is a $100,000 cap). All of the donated amounts may be excluded from your gross income for the year of the donation. Generally, distributions from traditional IRAs must begin once you reach age 72.
Another idea is a donation of highly appreciated stocks.Many non-profits and charities may accept gifts of securities. There are potential advantages for both the donor and charity compared with a cash gift. Let’s say you knew you wanted to donate a certain amount of money to your favorite charity, and you were going to liquidate stock to raise the cash. You could do that, but if you sell the shares, you might face a capital gain. However, if you donate the stock to the charity, the charity will take possession of the stock and as the donor, you may be able to deduct the gift. Obviously, you will want to consult with a tax advisor on this as well.
As you consider all this, please remember that tax laws are subject to change without notice, and this article is not intended as tax or investment advice. Consult your financial professional before making any charitable gifting, tax, or investment decision. This information is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.