'Tis the Season for Charitable Giving!
As we work our way through the fall and settle into the winter months, we’re getting to the time of year when most people make gifts to charity.
Charitable giving can be defined as giving money, goods, or time to a non-profit. Our discussion today will focus on gifting in the form of money. The IRS allows individuals (and businesses) to reduce their tax bills each year by making gifts to qualified non-profit organizations, also known as 501(c)3 organizations. These organizations have qualified for IRS exemptions, and face no income tax liabilities as long as they maintain their 501(c)3 status. The major categories of charities include educational organizations, religious organizations, public charities, private foundations, scientific and literary organizations, amateur athletic organizations, and organizations that do testing for public safety.
You can still gift to an organization that has not yet qualified for 501(c)3 status; however, your gift will not be eligible for a tax deduction.
According to Charity Navigator, nearly 1/3rd of all annual giving occurs in December each year, and 12% of annual giving occurs in the last three days of the year. And, according to Kindful, the biggest giving day of the year is December 31st. Wow!
These statistics are even more amazing when you consider that in 2020, roughly 34 million participants in GivingTuesday (the Tuesday after Thanksgiving) raised roughly 2.47 billion dollars in the US alone. GivingTuesday was started in 2012 to encourage people to give, collaborate, and celebrate generosity and generated 10 million of donations their first year. Since then, GivingTuesday has become part of a larger giving movement that inspires hundreds of millions of people across the globe.
It’s believed that the year-end rush is a combination of trying to take last minute tax deductions, as well as being part of a larger season of giving. While there are many with the mindset that charity begins at home and are more inclined to give generously to their families over someone they don’t know, the majority of Americans do gift outside their families. The Philanthropy Roundtable reports that 6 out of 10 American households participate in charitable giving each year.
So, you’re inclined to give, but where do you start?
If you’re employed, many employers – including the federal government – offer the opportunity to gift straight from your paycheck. Some employers offer a rotating group of hand-picked charities over the course of the year, while others have a system that allows you to pick which charity you’d like to support. This option automates your giving as your employer handles the logistics of distributing the funds.
If you’re retired and have gotten to the age where you need to take a Required Minimum Distribution (RMD), several years ago Congress passed legislation that allows you to make a nontaxable qualified charitable distribution (QCD) directly from your IRA. Amounts up to $100,000 per IRA owner are excluded from taxation (any excess amount is taxed at regular income tax rates). You get credit for taking the money as part of the RMD, and avoid paying taxes on the amount gifted – what a win-win!
If you have stock that is highly appreciated, or perhaps came to you as a gift and you’re not sure about the original cost, a nice option could be to gift the appreciated security. You get the benefit of claiming the current market value as the gifted amount without the tax bite of selling the position and recognizing any potential capital gains.
A Donor Advised Fund allows a family to make several years’ worth of charitable contributions at one time, then distribute to qualified charities as they wish. They have become more popular in the past few years, both for the opportunity to make a lump sum contribution in a high income year then control distributions over an extended period of time, but also because the Trump tax cuts in 2017 reduced the number of families itemizing their taxes.
If you’re inclined to give and find yourself lumping all your donations into the end of the year, consider making charitable giving a more regular cash flow item. Charities need plenty of help year round! I myself gift throughout the year and work the giving into my monthly expenses. To help keep me a little more organized – so I don’t gift twice to one organization and forget another entirely, because I’ve certainly done that! – I now keep a spreadsheet to help me remember what I’ve done in the past, and to work new ideas into the future.
Lastly, you can have charitable intent at the end of your life, either by donating a percentage of an account or by making a bequest in your trust or will.
As of this writing, we have roughly 8 weeks left in 2021 (wow, where did the year go?). Please give us a call if you would like to discuss your charitable gifting options. If you’re interested in executing anything this year, please connect with us as soon as possible. We’ll do our best to make your wishes a reality.
IRS Exemption Requirements - 501(c)(3) Organizations
Charity Navigator - Online Giving Statistics
Kindful - Year End Giving Statistics
Charity Navigator - #GivingTuesday 2020: A Record-Breaking Day
Philanthropy Roundtable - Who Gives Most To Charity?
IRS Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs)