• Daphne Jordan CFP (R)

A Gift that Gives

Updated: Jun 12



Like Santa, are you making a list and checking it twice?

As the march towards year-end continues, it’s quite possible that a part of your holiday madness is the wish to find a unique present for everyone on your list.

And as you ponder those options on Amazon or at the local mall, here’s a new possible recipient. How about wrapping up a bit of your monetary resources and giving a gift that gives? A donation to charity is one that does exactly that. If this is an interesting prospect, then keep these four tips in mind.

Give to a Reputable Charity

Giving to charities which are officially tax-exempt, non-profit organizations approved under section 501(c)(3) of the Internal Revenue code adds a benefit. Under current tax laws, you can generally obtain a taxable charitable donation of up to 50% of your adjusted gross income if you itemize on your taxes.

It’s important to take time to research chosen charities using tools such as Charity Navigator, GuideStar and this IRS Exempt Select Check tool. At these sites you’ll find useful background information and ratings in some cases. As a side note, church members may or may not find details about their place of worship on these sites. This is because under IRS code 508 (c), churches are automatically recognized as tax-exempt if they meet certain criteria. If the church did apply and receives 501(c)(3) status, you still won’t find a host of info since it isn’t required to file an informational Form 990.

Follow the Rules

Any check donation mailed must be postmarked for the current year. Gifts by credit card count if they’re processed by December 31st.

Noncash donations require extra steps at certain valuations and a Form 8283 with deductions over $500. Check with your tax professional for specifics or see this IRS site.

Consider a Donor-advised Fund

Perhaps you would like more time to think about charitable options or perhaps you’re concerned that this benefit will be revised by any impeding Congressional legislation. If so, contributing to a Donor-advised fund (DAF) would solve both dilemmas. You can think of a DAF as an investment account for future charitable grants. In other words, a DAF allows you to give a larger chunk now, receive a tax deduction in the current year, but decide on organizations to give to later.

Both Fidelity and Vanguard with an initial investment of $5,000 and $25,000 respectively, are examples of custodians with robust DAF programs.

Among other acceptable donations, such as cash, a DAF is also a good vehicle for appreciated securities. With appreciated securities, in addition to a tax deduction, you can generally save on capital gains taxes, possibly decrease estate tax and receive a tax deduction up to 30% of your adjusted gross income.

Validate the Gift

For tax purposes, you can use a bank record to substantiate, or backup, your donation.

Also, you should expect a contemporaneous written acknowledgement. Basically, the charity should acknowledge your donation in writing and provide this no later than the date you file your return for the year that the contribution is made.

Best practice is for the acknowledgement to include the name of the organization, amount of cash contributions, description (not value) of noncash donations, date given and special wording. This special wording is that no goods or services were provided by the organization (if that is the case). Churches should also add that any goods or services provided were for intangible religious benefits.

Donating to charity is truly a gift that gives. It gives help, hope and impact for the future—which are all perfect responses for any present.

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