As we come to the end of the year, it is time to consider opportunities for last-minute giving to help the ministries, nonprofits and places of worship about which we are passionate. These opportunities also enable donors to receive tax benefits they would not otherwise get. Remember, in order to claim a deduction for 2017, the gift must be made prior to December 31, 2017. Even if you use a credit card for the gift, and don’t actually pay for it until 2018, the gift is still deductible. Checks are also deductible, as long as they are given or mailed to the charity before year end. Here are three tips to consider, as you finish up your giving goals for the year.
Gifts of Cash
A gift of cash (or its equivalent, like a check) is always welcome by the charities and churches you support. Cash is simple and will allow you to take a charitable tax deduction for the contribution up to 50% of your Adjusted Gross Income. If you give more than you can deduct, this year, the remainder of the gift can be used on your tax returns for up to five additional years.
Gifts of Appreciated Assets
Donating appreciated property may give you and the nonprofit the biggest advantage. Such a gift could include stock, mutual fund shares and real estate. Donating appreciated assets allows a donor to receive a deduction equal to 30% of Adjusted Gross Income (AGI), providing the assets have been held for more than one year. So, why is such a donation often the “biggest advantage?” Let’s look at a hypothetical example:
Two years ago, you purchase a share of stock from XYZ, Inc. for $200. The stock of XYZ has increased in value to $1,000, today. If you sold this stock, on the market, you would be exposed to tax on the $800 of capital gain in the stock ($1,000 Stock Value – $200 Cost Basis of Stock = $800 gain in value subject to capital gains tax)
Rather than selling the stock and paying capital gains, you can give this stock to your favorite charity or church, get the deduction mentioned, above, AND avoid capital gains on the entire transaction. Here’s a quick look at the benefits of donating appreciated property:
- Donor avoids capital gains tax (15% for most taxpayers)
- Donor receives a tax deduction on current Fair Market Value ($1000 in the example)
- Nonprofit benefits from a gift of $1,000, as opposed to a smaller cash gift, if taxes are paid by donor who liquidates asset before donation
IRA Charitable Distributions
Required minimum distributions, or RMDs, are the distribution of money the government requires a person 70-and-a half to withdraw each year from their IRA or 401k. These distributions are 100% taxable and can create additional tax on your Social Security benefits, even if you would give the money away after you receive it. But the good news is that these RMDs also present an opportunity. You can take advantage of a provision in the tax code and redirect your RMD to a charity directly, skipping the taxes! Contact Ambassador Advisors today to set this up.
If you have any questions regarding these or other ideas, please call Ambassador Advisors at 717-560-8300.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.