taxes

4 Smart Ways to Give to Charity

These strategies will help you stretch your tax savings.

Question: I'm planning to write a check to my favorite charity, but I'm wondering whether there is another way to give to get a bigger tax break?

Answer: Donating cash to charity can give you a charitable deduction if you itemize. But a few other strategies could help you stretch your tax savings even further.

1. Donate appreciated stock. If you have stock that has increased in value since you bought it more than a year ago, you can give it to charity and deduct its value on the day you give it away. And by giving the stock directly to charity, you'll avoid having to pay capital-gains taxes on the increase in value over time. You can deduct the current market value only if you hold the stock for more than a year before giving it away. If you’ve held it for less than a year, your deduction is limited to your cost basis (what you paid for the stock).

2. Sell losing stock first. If the stock has lost value, it's better to sell it first and take a capital loss, then write a check to the charity. That way you’ll be able to deduct your capital loss, and if you itemize you can also deduct your charitable contribution. Your capital losses are first used to offset capital gains, and if you have more losses than gains, up to $3,000 of the excess can be deducted against other kinds of income, such as your salary and interest income. See Understanding Capital Gains and Losses for more information about the rules.

3. Give to a donor-advised fund. If you’d like to take a charitable deduction now but want more time to decide which charities to support, you can give cash, stock or other investments to a donor-advised fund. Some of these funds, such as Fidelity’s, will even accept real estate, privately held stock and other complex investments that many charities don’t accept directly. You can open a donor-advised fund at many brokerage firms and community foundations. You’ll generally need at least $5,000 or $10,000 to open the account, and you can invest the money in several investing pools until you’re ready to make grants to the charities. Fidelity’s donor-advised fund, for example, has a choice of 20 investing pools, including a socially responsible fund. Some donors who are close to retirement make large contributions to a donor-advised fund while they’re still working, to take advantage of the tax break when their income is high, then invest the money in the fund and make grants to the charities over many years in the future. (Most funds let you make grants of any size—from $50 to more than $1 million.)Setting up a donor-advised fund can also be a great way to teach your children and grandchildren about philanthropy by working together to decide which charities to support.

4. Give your RMD to charity. If you’re over 70½, you can give up to $100,000 from your IRA directly to charity each year, which counts as your required minimum distribution but isn’t included in your adjusted gross income. You can’t deduct the donation as a charitable contribution, but keeping the money out of your adjusted gross income can have extra benefits: You get a tax benefit for the donation even if you don’t itemize, and sheltering the money from your adjusted gross income could help you avoid the Medicare high-income surcharge or make less of your Social Security benefits subject to taxes. The money must be transferred directly from the IRA to the charity; contact your IRA administrator to find out about the procedure. For more information, see FAQs About Giving Your RMD to Charity.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Tool to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Tool to Get an Answer

The IRS has an online tool that lets you track the status of your third stimulus check.
April 4, 2021
4 Steps to a Happy Single Retirement
happy retirement

4 Steps to a Happy Single Retirement

The number of seniors who are single and childless is growing. This group needs to be purposeful as they think about their health and finances and fos…
April 8, 2021
6 ‘Retirement Killers’ to Avoid at All Costs
retirement planning

6 ‘Retirement Killers’ to Avoid at All Costs

Financial planners see people making these six money mistakes all the time, and they can endanger your retirement. Here are six surefire ways to kill …
April 1, 2021

Recommended

7 Ways to Save Money When Shopping Online
Smart Buying

7 Ways to Save Money When Shopping Online

Shopping online has long been a popular option. In these times, it’s increasingly a must. Here’s how to save money when filling your cart with the cli…
March 23, 2021
6 Money-Smart Ways to Spend Your Third Stimulus Check
Coronavirus and Your Money

6 Money-Smart Ways to Spend Your Third Stimulus Check

If you don't have to use your third stimulus check for basic necessities, consider putting the money to work for you. You'll thank yourself later.
March 20, 2021
10 Places That Will Pay You to Live There
real estate

10 Places That Will Pay You to Live There

Working remotely? You may want to check out these places that'll pay you to move there.
February 9, 2021
11 Superfoods to Boost Productivity at Work
business

11 Superfoods to Boost Productivity at Work

When you’re faced with a hectic workday, it can be all too easy to make some not-so-healthy food choices in between attending meetings, checking email…
December 9, 2020