With the holiday season upon us, it is time to start thinking about how you can give back in a multitude of ways that could also be beneficial to you, as the donor. Making a charitable contribution of money or time in place of traditional gift-giving can make your holiday shopping that much easier, while helping someone in need.
One option is to maximize your charitable contributions by donating certain assets rather than cash or checks, allowing you to increase your tax deduction at the same time. Donating assets that have a relativity low cost basis can turbocharge your tax deduction. While many people only think of their publicly traded stocks, bonds and mutual funds, it is important that you don’t overlook your privately held securities.
Complex assets that can be donated to charity include:
- Real estate
- Private company stock
- LLC and limited partnership interests
- Alternative investments
- Restricted stock
Although these assets may have a relatively low cost basis, they may also have a significant current market value, and if sold, would generate significant capital gains. In donating the assets to charity, the donor would potentially receive a charitable tax deduction of the entire appreciated market value and avoid the capital gains all together.
Those over age 70 ½ can also consider the Qualified Charitable Distribution provision as an effective means of avoiding taxation of philanthropic gifting. The Consolidated Appropriations Act of 2016 made permanent qualified charitable distributions (QCDs) from IRAs; up to $100,000 annually can now be transferred directly from an IRA to a qualified charity. Instead of taking the distribution from your IRA, paying the tax, and then making the donation, you instead can make the QCD directly from your IRA. While you won’t receive a charitable contribution deduction for the donation, you will also not have to recognize the contribution amount as ordinary income. QCDs enable individuals to bypass the taxation of charitable gifts and negate the impact of these distributions on your adjusted gross income.
More information on qualified charitable distributions can be found here.
In addition to the ordinary conversations about year-end gift giving, which are traditionally coupled with tax benefits, there are other philanthropic approaches you can take this holiday season. While many parents are charitably inclined, oftentimes they miss an opportunity to share their inclinations with their family. The holidays can serve as an ideal jumping off point to initiate the “spend, save, share” conversation with your children — by including them in your year-end philanthropy. Further, what if you decided to forego traditional gift-giving altogether and donated time instead?
A few non-monetary ideas include:
- Volunteer to help make the organization of your choice more festive during the holidays by bringing in decorations, presents, etc. These could be homeless shelters, family service organizations, nursing homes, animal shelters or more.
- Help the homeless. At a time when warm homes and family gatherings are common, the homeless are left feeling particularly isolated. Some options for assistance range from serving food at shelters to building homes, tutoring or sharing a meal with a lonely person in need during the holiday season.
- Visit a senior. More than half of senior citizens in nursing homes never get visitors. During the holidays it is especially important to reach out to those who do not have family members close by and share the season of giving with them.
Keep in mind that no matter how you choose to give back in the coming months, there is nothing quite as rewarding as the feeling you get from helping others.
Information contained herein has been obtained by sources we consider reliable, but is not guaranteed, and we are not soliciting any action based upon it. Any opinions expressed are those of the author and based on interpretation of data available at the time of original publication of this article. These opinions are subject to change at any time without notice. Investors should consult their financial and/or tax advisor before implementing any investment plan.