’Tis the season for giving, and no one knows this better than charities. Americans traditionally give the most to charities between Thanksgiving and the New Year – mostly due to the holiday spirit and partly for year-end tax planning.
I always advise clients not to give for tax reasons, but instead to give because they want to be charitable. That said, once you’ve decided to be charitable, it only makes sense to do so it a “tax smart” way. Here are three options to consider.
Charitable IRA – Taxpayers who are age 70½ or older can make gifts directly to a charity this year from their IRA. 2011 may be the last year you can do this, as the law is set to expire on December 31, 2011. For more information on how to make a charitable IRA donation, see Charitable Giving and the IRA Charitable Rollover from April 2011.
Gift Appreciated Securities – Assets that have appreciated from purchase can be gifted to charities without being sold. This avoids paying capital gains tax on the appreciation and allows you to deduct the appreciated value. A good choice for gifts would be any gold or gold ETFs. Gold is up this year, and gifting it rather than selling it would allow you to avoid the nasty collectibles tax I wrote about earlier.
Donor Advised Fund – Have you made a five-year pledge to a charity? Would you like to take the deduction all up front but not gift the money to the charity until it’s due? A donor-advised fund (DAF) may be the answer. The DAF is a recognized charity that exists to make grants to other charities. You control where the grants are sent. You can gift appreciated securities today, taking the deduction this year. Then distribute the money over time to the charities you want to support.
This year, make the most of your charitable giving, but don’t wait. Gifting securities is not as easy as writing a check. Some lead time will be needed to make sure the gift is made before year-end.