Make Last-Minute Charitable Gifts Work for You
Guidelines for retirees on smart ways to make donations at the end of the year.
Feeling generous as the year winds down? Maybe your carefully laid out 2016 budget shows an unexpected surplus and you want to share your good fortune. Or maybe you're looking to render less unto Caesar by locking in a last-minute tax deduction.
You're not alone. The final weeks of the year routinely see a surge in charitable donations. Charity Navigator, a nonprofit that evaluates charities, found a couple of years ago that 31% of all giving occurs in December—12% in the last three days of the year.
If you're planning last-minute gifts, recognize that what you give and how you do it can affect what "last minute" means. To qualify for a 2016 income-tax deduction, the gift must be completed by the end of the year. If you charge a contribution to a credit card or send it via text, you have until late, late New Year's Eve. As long as the charge shows up on your December statement or phone bill, the donation counts.
Mailing a check demands a bit more advance work. You need to get it in the mail by the deadline. A postmark will provide evidence but, of course, the envelope will wind up in the charity's trash rather than your tax file. For an unusually large gift that might provoke IRS scrutiny, you may want to use certified mail so you have a receipt that proves timely mailing. That requires getting to the post office while it’s open.
Giving appreciated property. Things get trickier if you want to take advantage of a highly promoted strategy to supercharge the tax-saving power of your philanthropic urges: the donation of appreciated assets. If you donate stock or mutual fund shares, say, that you have owned for more than one year, you can deduct the full market value on the date of the gift. You get the big write-off and neither you nor the charity has to pay tax on appreciation while you owned the asset. But locking in double-barreled tax savings takes planning and time.
First, you need to identify the shares you want to give away; to maximize the tax savings, you'll want to choose shares that have the lowest tax basis, and thus the highest profit to be extinguished. Next, contact the charity for details on your next move. Large charities likely have a brokerage firm to receive your gift. Smaller organizations might need to set up an account to receive the shares.
Even when gifts of appreciated property are routine, it can take time. Consider the process at Fidelity Charitable, a donor-advised fund that has handled nearly $25 billion in gifts to public charities since 1991. Little notice is needed if you’re shifting shares electronically from a Fidelity brokerage account to the fund. But, says Karla Valas, managing director of the fund's complex asset group, it can take weeks to accomplish a transfer if assets are coming from another mutual fund company or brokerage account. The general cutoff date to get the ball rolling this year is December 2 for publicly traded stock. "You can count on us to work as hard as we can to facilitate the donation," she says, "but if you don't plan ahead, you could run out of time."
If it's too late to get the assets to the charity of your choice, Valas suggests contributing to a donor-advised fund. If the assets are transferred to the fund by December 31, you lock in the deduction for 2016. You can direct the fund to make the donation to your charities in the future.
Giving away your RMD. Timing is also an issue if you want to make a direct donation from your IRA to a charity. For taxpayers age 70½ and older, up to $100,000 of such transfers can be made tax-free. The funds must go directly from your IRA to the charity (and you can't make a direct transfer to a donor-advised fund). You can either ask your IRA administrator to write a check and send it to the charity (if so, make sure the administrator includes information naming you as the donor so the charity can send you an acknowledgement) or have a check written to the charity and sent to you to pass on. If you choose the latter course, you must get the check in the mail by December 31.