Carlile Patchen & Murphy attorney Geoffrey Kunkler's strategies for making the most of nonprofit donations.
From a purely tax perspective, there are some ways to maximize your giving this season. Before discussing these strategies, it is worth noting that tax savings will only apply to those individuals who itemize their income tax deductions. Additionally, only donations to qualified charitable organizations are deductible for tax purposes. That being said, for those making contributions to eligible charities that they plan to deduct, there are some strategies worth considering to maximize tax savings.
Consider donating appreciated securities
While cash contributions are the most common form of charitable giving, many individuals could receive a greater tax benefit by contributing appreciated stocks or other securities.
When donating a publicly traded stock to a public charity (without selling the stock) the donor can claim the fair market value of the stock (rather than the cost basis) up to thirty percent (30%) of the donor's adjusted gross income. By giving the securities away, capital gains are not realized by the donor even if they are highly appreciated. As a result, the tax savings can include both the charitable deduction and also the shifting of the potential capital gains tax liability.
Consider creating a donor-advised fund
A donor-advised fund is a tool that is offered by many community foundations and other organizations which allows donors to make contributions to a fund, immediately take a tax deduction, and then later make recommendations regarding the actual distribution of the gift to public charities.
Until your donation is fully distributed it can be invested to allow for growth that maximizes the impact of the gift. In fact, it's possible at many institutions to create an endowed fund which contributes income earned from the original contribution to charity in perpetuity. This can be a particularly useful strategy if you find yourself faced with a particularly successful year that encourages you to make a large charitable gift without the time to properly conduct due diligence on the ultimate recipient of the gift.
Consider donating closely-held business interests or other complex assets
Often, small business owners find themselves owning assets with very low or no cost basis. Situations like this present many opportunities for charitable planning. Planning to donate closely-held business interests, real estate, personal property or other types of assets requires careful planning. The potential tax savings with these types of assets can be enormous, though. When considering making gifts of these types of assets it is crucial to consult tax, legal and charitable professionals to ensure that the plan is properly designed and executed.
Maximizing year-end giving requires one to realize more than simply the potential tax benefits. With that in mind, when considering giving this holiday season, consider doing three things:First, focus your efforts on the causes most closely aligned with your passions. Focusing the majority of your giving on a small number of causes will have a larger impact than spreading the giving very thinly across a wide number of causes. Second, get involved with a charity you care about. There are countless volunteer opportunities and if you are unsure of your true passion there is no better way to learn about the charitable community. Always keep in mind that one of the most valuable things that can be given this time of year is your own time and self. Third, extend your giving beyond the holiday season. While tax-driven gifts often come at year-end, this isn't the only time that charities are in need. A recent study by Network for Good found that twenty-two percent (22%) of online gifts are made on either December 30 or 31. While it's great that these gifts are made, it's also important to make sure our giving continues throughout the year.
Geoffrey S.Kunkleris an attorney with Carlile Patchen & Murphy LLP and is a member of the Family Wealth & Estate Planning Group. Geoff's practice is centered around estate planning for individuals and business owners as well as asset protection planning for retirees. For more information visitwww.cpmlaw.com.