The holiday season can be an inspirational time of year that encourages generosity and giving to charitable organizations in your own community and around the world. Below are a few simple tips to keep in mind if you’re thinking about making charitable contributions prior to year end.
- Have a gifting strategy. The holidays are not only the season of giving, but also the season of asking, especially for charitable organizations. Creating an upfront gifting strategy will help you focus your donations on things that matter most to you and your family.
- Check behind the curtain. Make a connection with someone at the organization, especially a member of their senior leadership team. Knowing the people behind the cause will help you understand their ability to accomplish their goals, as well as the sincerity of their mission.
- Give your gift a target. Make it clear to the charity what you want to support. Many organizations have several programs functioning in tandem. If you would like your money to support one specific goal, make sure you specify your goal.
- Include the next generation. Including younger generations in your gifting strategy encourages the spirit of generosity for years to come. It also helps create a legacy with your children, grandchildren, and heirs by helping them understand the importance of what you are trying to accomplish.
- Consult your tax professional. There are several different ways to deduct charitable contributions. There are also some restrictions you should know about. For example, if you receive a benefit as a result of your contribution, e.g., a hotel stay or auction item, these donations may not be fully deductible.
- Charitable contributions must be completed by December 31, 2018, to potentially qualify as a tax deduction on your 2018 return. In addition, be sure your gift goes to a qualified organization. Examples include churches, nonprofit 501(c)(3) charitable or educational organizations, nonprofit hospitals and research organizations, and nonprofit firefighter organizations.
- Think outside of cash donations. It may make sense to gift appreciated shares in your portfolio for larger donations. In this scenario, the charity can liquidate the holding and not pay the associated capital gains tax. The donor receives the potential tax deduction for the full value of the shares on the day of transfer and the added benefit of not incurring the gain.
- Take advantage of IRA qualified charitable distributions (QCDs). The Consolidated Appropriations Act of 2016 made QCDs permanent. This rule allows you to contribute $100,000 or less directly from your IRA to a qualified charitable organization if you are age 70 ½ or older at the time of the distribution without reporting it as taxable income on your 2018 return.
- Follow up. Reach out to the organization for updates on your donation. Ask for pictures where applicable and progress reports on what has been accomplished with your donation. This step may determine which organizations you would like to include in your gifting strategy in future years.
- To claim a deduction for contributions of cash, checks, or other monetary gifts, you must maintain a bank record, payroll deduction record, or written communication (such as a receipt) from the charitable organization. This record must contain the organization’s name and the date and amount of the contribution. For donations made via text message, a telephone bill will meet the record-keeping requirement — as long as it meets the same criteria.
- To claim a deduction for contributions of cash or property equaling $250 or more, you must follow the requirements listed in Tip #9 and obtain an acknowledgment from the organization. The acknowledgement must show the amount of cash donated or provide a description of any property contributed, as well as whether or not the organization provided goods or services in exchange for the gift. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283 Noncash Charitable Contributions to your return.
If you have any questions about your end-of-year gifting strategy, please do not hesitate to contact JNBA Financial Advisors. Because some of the above considerations involve tax information and could be unique to your situation, we suggest checking with your tax professional.
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Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, Inc.