One generous person can make a heroic impact for individuals, families and communities in need, and charitable organizations like the Heroes Foundation help facilitate that impact. Depending on your tax bracket, you may be able to lower your tax bill — possibly significantly — by making a charitable donation.
The most common way people contribute to their favorite organization, church or school is with cash or a check, but donors have other options, says Julie Singer, a Financial Advisor in the Indianapolis office of Raymond James. Singer is a supporter of the Catherine Peachey Fund (a member of the Heroes Foundation family) by way of her family’s connection to the cause. (Pictured here are Julie at far right with her parents, Joel and Robin Singer, and Andrew Keeler.) As you consider where to give during this season of generosity, also consider how you give.
One size does not fit all, so let’s break it down.
With the cash option, you can itemize the gift on your tax return and generally get a deduction when you pay your income tax. For both the donor and the nonprofit on the receiving end, the benefit is relatively immediate.
For organizations or causes that have urgent needs, this option is particularly appreciated. If the organization serves communities impacted by natural disasters or is experiencing unexpectedly low giving, for example, a cash gift might be ideal.
You may also consider a gift of real property. This can include a home or property you inherited, or a car you no longer drive. If you have something valuable and unwanted at your disposal, talk to your favorite nonprofit about how a gift of real property might benefit its cause.
On the downside, if a group isn’t accustomed to accepting real property as a gift, it will have to determine the best way to manage the transaction and how to maximize the value of the property for the organization.
“If you have securities to give, rather than selling them, taking the proceeds from the sale, and then donating the proceeds, you can transfer the securities directly to the nonprofit. This way, you shouldn’t have to pay taxes on capital gain because you transferred the securities instead of selling them,” Singer says.
A gift of securities, such as stocks or bonds, can be better for the organization as well because it has options. If the nonprofit sells the securities immediately, it has cash in hand. If it chooses to keep the securities, their value can increase over time. Of course, the value can also decrease based on the market, so each recipient will decide how to proceed based on factors such as its liquidity needs.
“Not enough people know about giving a gift of securities. It’s not common and is a little more complicated than a cash gift because you have to figure out how and where to transfer the securities,” Singer says. Your financial planner can help guide you.
A donor who has a concentrated position (a decent number of shares of a different position — such as a mix of stocks and bonds) or who has received a significant number of shares of something at a low rate that went way up, giving to a philanthropy might be a good option because the donor would avoid the capital gains tax.
Instead of giving money to cover an organization’s needs, consider an in-kind donation of the products or services the group typically has to buy. If you are astute at accounting, legal services, printing or photography, find out if the organization you support can use your expertise.
Compared to a gift of property that must be maintained, stored or sold, goods and services are an immediate way for the organization to benefit. As a donor of services, in particular, you play a direct role in the work of the group. Talk to your CPA or refer to the IRS table of ($23.07/hour) regarding tax benefits for making in-kind donations.
Donors with an IRA can designate a nonprofit as a beneficiary for a portion or the entire value of the account. You may dole out percentages of the account’s worth to different organizations, family members, etc., using an IRA beneficiary form. This form must be completed in order for the distribution to be applied, no matter what your will might state.
Congress has made it easier to make IRA gifts happen for some people. In the past, when you had an IRA at age 70.5, you had to make required minimum distributions. But some people don’t need that money at age 70.5. Whatever these 70-somethings don’t want to take out, up to $100,000, they can give directly to a nonprofit and it’s not taxable.
Many baby boomers are at an age when they’re starting to get close to retirement, or major cash events such as the sale of a business might have bumped them up into a higher tax bracket. Charitable giving can be used to decrease taxable income while they make an impact for good.
“When you’re young, you might not be claiming deductions on your taxes. However, building a habit of thinking about how you want to shape the world and the community around you there’s no age that’s too early to start thinking about that,” Singer says.
The 27 year old says young people are thinking about philanthropy more and more, as the millennial generation has been raised to think about ethical choices and protecting others. Volunteering is a first step, with so many opportunities to mentor, tutor or lend elbow grease. These kinds of services may be eligible for itemization on a tax return.
“Whenever you have something you want to give, it’s important to ask the organization if they can make it work. Don’t assume it won’t work,” Singer says. “There are so many ways to address a circumstance that it’s important to know that there are always creative solutions when you have complex circumstances. It makes them interesting; it doesn’t make them impossible.”
Views expressed in this article are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Raymond James is not affiliated with the Heroes Foundation. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC
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