If the end of the year finds you in a charitable mood, you are not alone. Nearly one of every three dollars (31%) in online donations to charitable causes is given in December, and one dollar in eight (12%) flows in a three-day torrent just before New Year’s, according to online giving portal Network for Good.
Holiday warm-and-fuzzies are not the only reason for the year-end donation splurge, of course. Tax considerations also loom large in the timing of charitable contributions for many givers. And, just as you want to be careful not to be taken in by holiday charity scams, it’s also important to make the most of the tax donation from your giving. Two year-end giving techniques -- donating appreciated stock and setting up a donor-advised fund -- can help make sure that a gift given in December still looks smart come January.
One of the most widely recommended ways to give is by donating appreciated stock. For clients who have stock acquired years ago that has appreciated significantly, this is way smarter than selling the stock and then writing a check to the charity, said Sandra Kingsley, a financial planner with FBB Capital Partners of Bethesda, Md. “It’s a really big deal,” Kingsley said.
The reason financial planners are so keen on donating appreciated stock is that tax law allows donors to write off the full current market value of the shares as a charitable donation, while avoiding having to pay capital gains taxes on the shares’ gain in value. In addition to reducing or eliminating capital gains taxes, this maximizes the donation to the charity, which in turn maximizes the donors’ charitable write-off.
Donating appreciated stock often allows donors to provide significantly more support to their chosen charity than they would if they sold stock and wrote a check, according to Paul Tarins, president of Sovereign Retirement Solutions in Winter Park, Florida. “There’s no downside to that strategy,” he said.
A donation of stock to a charity can be readily handled by the financial institution that is acting as custodian of the shares for the owner. “They’ll have the proper form to fill out and they’ll transfer the amount of securities you indicate to the charity of your choice,” Tarins says. “It’s very, very easy.”
While it may be easy, trying to take advantage of tax write-offs before the Decemer 31 deadline can put pressure on would-be benefactors to quickly select a charity. That can lead to poorly thought-out donations that may not really represent what a donor would like to achieve with a gift. Donor-advised funds can help.