Some surveys indicate that more than 30 percent of all charitable giving occurs in December, and over 10 percent of donations are made in the last three days of the year. The year-end holiday spirit may be a factor in the early winter philanthropy, but taxes play a role as well. A check you write to your favorite charity or nonprofit in December gives you a tax deduction the following April, but if you wait until New Year’s, you will have to wait a full year for the tax benefit. To do well while doing good, you might reconsider the typical practice of writing checks for gifts to charity. Instead, give appreciated securities. Going into the ninth year of a bull market, you probably have stocks or stock funds that have gained value and would be ideal for contributing to your favorite cause.
Example: Jack Franklin donates $5,000 a year to 10 different charities, at $500 each. Jack sends $5,000 of appreciated securities, bought years ago for $3,000, to a donor-advised fund. If he donates the securities by December 31, 2019, Jack can take a $5,000 deduction on his 2019 tax return. Once the money is in the donor-advised fund, Jack can request grants of $500 each to his 10 designated recipients. Even if he requests the grants after 2019, his tax break for this year won’t be affected.
Contrary to popular belief, the Tax Reform did not take away the deduction for charitable contributions. It is important to obtain acknowledgment for each deductible donation of $250 or more from the nonprofit organization that received the donation. Learn more about tax-saving strategies by contacting Smith Schafer & Associates. Click here to send a message.