CHARITABLE GIVING: About 20% of all charitable giving in the U.S. occurs in December, more than double any other month. In the U.S., we give more to charity than any other country. Annual philanthropy as a percentage of our Gross Domestic Product (GDP) is 1.44%, nearly double that of Canada and triple that of the UK.
If you are considering giving to charity, we applaud your impulse. We encourage generosity. But we have a few thoughts to consider:
- Give Thoughtfully, Not Impulsively.
Many try to tug at your emotions, and some are very good at it. Do not make impulse gifts out of emotion. You are probably getting all sorts of mail, email and other communications from charities asking for support. Be proactive in your giving, and take control. Decide how much you want to give away, and then determine to whom you will give it this year. This allows you to say ‘no’ to very worthy charities that just don’t get on your priority list. Several years ago, my wife and I decided to give more money to less charities. We wanted to make more meaningful gifts to charities that we determined were our top priorities. Since we went through that exercise, we have had to say ‘no’ even to very direct requests, because there is nothing left in our giving budget for the year. Be generous, but don’t be disorganized in your giving.
- Give to Worthy Charities.
By being more thoughtful, it also gives you the time to do your research. Websites like Givewell and Charity Navigator and Guidestar can be quite helpful. Find out as much as you can about the charity. Visit it. Talk to people who have been impacted by the charity. Get a comfort level that the mission of the charity is consistent with your values and your purpose in life. You have worked hard for this money. Give it to a charity that is going to make a real difference.
- Don’t Pay Unnecessary Capital Gains Tax.
If you have low basis property you have owned for a year or more, and that will generate capital gains upon sale, do not sell the property to create cash to give to the charity. This will cause you to incur capital gains tax. Instead, approach the charity and see if they will accept the low basis property directly as a charitable gift. For example, you have shares of XYZ stock that you purchased for $1,000, and now it is worth $3,000. If you sell the shares, and give the resulting $3,000 to charity, you will get a $3,000 charitable deduction (if you itemize), but you will have to report $2,000 in taxable capital gains and perhaps incur hundreds of dollars in tax. If you give the XYZ shares directly to charity, you get the same deduction, the charity then sells the shares, and no capital gains tax liability is generated.
- Consider Utilizing Qualified Charitable Contributions from Retirement Accounts.
If you are 70.5 or older, you can make a qualified charitable contribution directly from your traditional IRA to a charity (up to $100,000). Even though you are distributing money from your retirement account, that amount will not be considered a taxable distribution. You do not get a charitable deduction. However, you are moving money out of your traditional IRA without incurring any income tax liability.
- The Standard Deduction $300 Opportunity.
More people than ever are using the standard deduction instead of itemizing. If you use the standard deduction, you may still deduct up to $300 in cash donations each year.
- The Standard Deduction and Stacking Charitable Gifts.
Also, if you use the standard deduction, you may want to consider “stacking” your deductions. In other words, if you normally give $10,000 per year to charity, and your total deductions are not enough to make itemizing worthwhile, consider giving several years of charitable gifts all in one year, with no gifts in the ensuing years. In the years that you make no gifts, you still have the standard deduction. In the year you make the stacked gifts to charity, you can itemize.
If you do not want to give all your gifts to charity in a particular year, you can put all that money in a Donor Advised Fund. This allows you to make a deductible charitable gift in one year and pass the money to the actual charity in later years if you wish. To learn more about such funds, click here to watch a webinar done by Stonecrop Wealth Advisors on this subject. Please note, if you want to set up a donor advised fund for 2022, you must act immediately. It takes time to process a new account, so you would essentially have to get started right away, within the next week.
Even of you are itemizing, there are limits to how much you can give to charity in any given year, and it is different for cash and stocks you have held for a year or more. Of course, you should consult your tax consultant before embarking on any steps to control your tax liability. If you have any questions about how you can best make charitable gifts now or in the future, please reach out. We would love to help you.
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