December is a time for giving. For many of us, that conjures images of presents for friends and family. Additionally, charitable giving traditionally ramps up as we approach the end of the year. According to Giving USA, American charities received $449.64 billion in 2019 which was more than 2% of US GDP. On average, December alone accounts for 20% of charitable giving according to iDonate.com.
For most, this giving happens the old-fashioned way – by donating cash. Just because this is the traditional way of giving, though, may not make it the best for you, especially when taxes are considered.
While this is by no means an exhaustive list, below are some less popular, but occasionally advantageous, ways to contribute to the charities you care about.
Donating Appreciated Stock
If you have a large gain in a taxable investment account, consider donating the shares directly to the charity. The donor avoids realizing taxable capital gains and realizes a donation amount based on the investment value on the day it’s transferred to the charity. As a tax-exempt organization, the charity isn’t required to pay capital gains taxes like an individual or corporation. Often, the investment will be sold quickly upon receipt but occasionally it will be added the organization’s investment portfolio. No matter what the charity does with the shares, the donor’s gift amount doesn’t change.
Qualified Charitable Contributions
For those over the age of 70 ½ who have retirement savings in a traditional IRA or 401(k), a Qualified Charitable Contribution (or QCD) may be the best option. The funds, which go directly from the account to the charity, do not get included as income on the donor’s tax forms and therefore can lesson not just federal, but state and local taxes as well. To learn more about QCDs, click here.
Time and Talent
Perhaps monetary donations aren’t possible for you this year. COVID has impacted employment for many and the stimulus checks feel like a lifetime ago. There still may be ways to help out that favorite charity by volunteering, though. Admittedly, this is probably more difficult in 2020 than in years past, but organizations still need helpers, COVID or not, with everything from manual labor to drivers to operational and clerical tasks. Perhaps you could even organize your own small fundraiser among your friends and family.Who you give to is a personal decision. You may want to have a discussion with your tax and investment advisors, though, before you determine how and what to give.