As we continue our year-end tax planning series, we would be remise if we did not include a post on charitable giving. While most of us have causes we like to support regardless of the tax benefit, we should not ignore the bonus that comes from giving to a tax deductible target.
When making contributions, there are a few attributes you may want to consider.
First, you want to ensure an entity qualifies as a tax-exempt organization so you don’t get burned when taking a tax deduction. This is pretty easy to do. Simply, utilize the IRS Exempt Organizations Select Check tool on the official IRS website. This tool allows you to verify an organization’s tax-exempt status and eligibility to receive tax-deductible charitable contributions.
You can also visit Charity Navigator, an independent charity evaluator that provides ratings and reviews of charitable organizations. Charity Navigator assesses factors such as financial health, accountability, and transparency.
You can also access GuideStar, a comprehensive database of nonprofit organizations. GuideStar provides information about a charity’s mission, programs, financials, and leadership.
The Better Business Bureau Wise Giving Alliance also provides reports on charities. This resource evaluates charities based on governance, effectiveness, and fundraising practices.
Let’s back up momentarily to consider why a little diligence is recommended. Not all not for profits are created equal, just as not all for profits are created equal.
It may have never occurred to you, but one reason to consider IRS-approved public charities is because they meet specific criteria and comply with IRS regulations for tax-exempt status. Donations to these organizations align with the IRS guidelines for tax-deductible contributions. While large charities are by no means the only path to take, you inherit some level of safety. We are certainly not suggesting this as the right or only path…just one to keep in your arsenal.
Here are a few examples of larger “public good” charities. You are no doubt already familiar with each:
American Red Cross: Provides disaster relief, support to military families, blood donation services, and health and safety training.
Doctors Without Borders (Médecins Sans Frontières): Delivers medical aid to areas affected by conflict, epidemics, or natural disasters globally.
United Way Worldwide: Focuses on community impact, addressing education, income, and health challenges to create lasting change.
Realize that approved charities are committed to a level of transparency in their operations and accountable use of funds. Donors can trust that their contributions will be utilized for the intended charitable purposes. You may also want to review how much of a given donation actually goes to the cause. Some charities can have overhead approaching 50% and this tends to be the case with some of the largest players in the field.
While administrative overhead may not be amongst your top criteria, know that IRS-approved charities are also recognized for their contributions to the public good. The tax deduction is a way to incentivize and reward individuals for supporting organizations that serve the community. Of course this also means you are relying on the IRS to determine “public good.”
Donors who contribute to IRS-approved public charities enjoy some added legal protection…perceived or real. Following IRS guidelines ensures that the donation is recognized as a legitimate charitable contribution.
Its also important to realize there are a number of places you may identify as sources of donative funds. They don’t just have to come from your checking account.
One source of funds you may wish to toss in the pool for consideration is underperforming assets…usually public equities. If you determine an asset is going to languish for the foreseeable future and could easily be cut form your portfolio, it may be a solid source of charitable capital.
Inform your brokerage of your intention to donate the sales proceeds to charity. Provide your wealth manager with donation details along with instructions to liquidate.
Specify the purpose of the donation, whether it’s a general contribution or directed towards a specific program.
Provide any necessary documentation requested by the charity.
The sale of underperforming stocks results in capital losses, which can be used to offset capital gains. Capital losses can reduce your taxable income, potentially resulting in lower tax liability.
Donating the sales proceeds to a charity allows you to claim a tax-saving itemized deduction for charitable contributions. This deduction can further reduce your taxable income, providing an additional tax benefit.
By combining the capital loss savings with the charitable deduction, you maximize the tax efficiency of your financial strategy.
Be aware of the annual limits and rules regarding capital losses and charitable deductions set by tax regulations. Your tax advisor can assist with this.
By strategically identifying underperforming stocks, selling them for tax-saving capital losses, and donating the proceeds to a charity, you can leverage a double tax benefit to enhance your overall financial position while contributing to a charitable cause.
In addition to underperforming assets, you can also leverage well performing assets. You can directly donate appreciated stock value without incurring capital gains taxes.
When you sell appreciated stocks, you typically owe capital gains taxes on the profit. By donating the stocks directly to a charity, you sidestep this tax liability entirely.
Donating appreciated stock value may allow you to make a more substantial impact on charitable organizations. Since the charity receives the full market value of the donated stocks, they benefit from a larger contribution compared to the after-tax proceeds of selling the stocks and donating the cash.
We will continue to feature not for profits that have AngelMD members associated with them. Most of the time you will see these featured in Vital Signs and occasionally here in the blog. Each of them is doing terrific work and qualifies as a tax deduction when you give.
When making contributions, there are a few attributes you may want to consider.
First, you want to ensure an entity qualifies as a tax-exempt organization so you don’t get burned when taking a tax deduction. This is pretty easy to do. Simply, utilize the IRS Exempt Organizations Select Check tool on the official IRS website. This tool allows you to verify an organization’s tax-exempt status and eligibility to receive tax-deductible charitable contributions.
You can also visit Charity Navigator, an independent charity evaluator that provides ratings and reviews of charitable organizations. Charity Navigator assesses factors such as financial health, accountability, and transparency.
You can also access GuideStar, a comprehensive database of nonprofit organizations. GuideStar provides information about a charity’s mission, programs, financials, and leadership.
The Better Business Bureau Wise Giving Alliance also provides reports on charities. This resource evaluates charities based on governance, effectiveness, and fundraising practices.
Let’s back up momentarily to consider why a little diligence is recommended. Not all not for profits are created equal, just as not all for profits are created equal.
It may have never occurred to you, but one reason to consider IRS-approved public charities is because they meet specific criteria and comply with IRS regulations for tax-exempt status. Donations to these organizations align with the IRS guidelines for tax-deductible contributions. While large charities are by no means the only path to take, you inherit some level of safety. We are certainly not suggesting this as the right or only path…just one to keep in your arsenal.
Here are a few examples of larger “public good” charities. You are no doubt already familiar with each:
American Red Cross: Provides disaster relief, support to military families, blood donation services, and health and safety training.
Doctors Without Borders (Médecins Sans Frontières): Delivers medical aid to areas affected by conflict, epidemics, or natural disasters globally.
United Way Worldwide: Focuses on community impact, addressing education, income, and health challenges to create lasting change.
Realize that approved charities are committed to a level of transparency in their operations and accountable use of funds. Donors can trust that their contributions will be utilized for the intended charitable purposes. You may also want to review how much of a given donation actually goes to the cause. Some charities can have overhead approaching 50% and this tends to be the case with some of the largest players in the field.
While administrative overhead may not be amongst your top criteria, know that IRS-approved charities are also recognized for their contributions to the public good. The tax deduction is a way to incentivize and reward individuals for supporting organizations that serve the community. Of course this also means you are relying on the IRS to determine “public good.”
Donors who contribute to IRS-approved public charities enjoy some added legal protection…perceived or real. Following IRS guidelines ensures that the donation is recognized as a legitimate charitable contribution.
Its also important to realize there are a number of places you may identify as sources of donative funds. They don’t just have to come from your checking account.
One source of funds you may wish to toss in the pool for consideration is underperforming assets…usually public equities. If you determine an asset is going to languish for the foreseeable future and could easily be cut form your portfolio, it may be a solid source of charitable capital.
Inform your brokerage of your intention to donate the sales proceeds to charity. Provide your wealth manager with donation details along with instructions to liquidate.
Specify the purpose of the donation, whether it’s a general contribution or directed towards a specific program.
Provide any necessary documentation requested by the charity.
The sale of underperforming stocks results in capital losses, which can be used to offset capital gains. Capital losses can reduce your taxable income, potentially resulting in lower tax liability.
Donating the sales proceeds to a charity allows you to claim a tax-saving itemized deduction for charitable contributions. This deduction can further reduce your taxable income, providing an additional tax benefit.
By combining the capital loss savings with the charitable deduction, you maximize the tax efficiency of your financial strategy.
Be aware of the annual limits and rules regarding capital losses and charitable deductions set by tax regulations. Your tax advisor can assist with this.
By strategically identifying underperforming stocks, selling them for tax-saving capital losses, and donating the proceeds to a charity, you can leverage a double tax benefit to enhance your overall financial position while contributing to a charitable cause.
In addition to underperforming assets, you can also leverage well performing assets. You can directly donate appreciated stock value without incurring capital gains taxes.
When you sell appreciated stocks, you typically owe capital gains taxes on the profit. By donating the stocks directly to a charity, you sidestep this tax liability entirely.
Donating appreciated stock value may allow you to make a more substantial impact on charitable organizations. Since the charity receives the full market value of the donated stocks, they benefit from a larger contribution compared to the after-tax proceeds of selling the stocks and donating the cash.
We will continue to feature not for profits that have AngelMD members associated with them. Most of the time you will see these featured in Vital Signs and occasionally here in the blog. Each of them is doing terrific work and qualifies as a tax deduction when you give.
