1. Time donations to ensure deduction is applied in desired year
Donations are eligible for deduction based on the date the charity receives the donation and you relinquish control. If you deliver a check to the charity or it is postmarked on Dec. 31, it is deductible in 2013. If you utilize a delivery vendor though, the “mailbox rule” doesn’t apply, the charity must receive the donation. This is especially important when it comes to donations of securities as they are typically transferred by a broker and must be received by the charity’s broker by Dec. 31 in order to be deductible in the current year.
2. Donate appreciated securities versus cash
With the increase in capital gains tax, there may be additional tax benefits for you by donating appreciated stock or mutual funds rather than cash. Typically you are able to deduct the fair market value of the donation and the charity receives the fair market value.
3. Verify charity is eligible and able to accept your gift
Other than gifts of cash, some charities do not have the administrative capability to administer other gifts. The American Taxpayer Relief Act of 2012 (ATRA) extended the qualified charitable distribution (QCD) provisions through 2013. Not all charities are eligible to receive QCDs. Additionally, if donating property, make sure that it is used in the charities primary mission. For example, donating a painting to a museum would typically qualify for a deduction of fair market value. If the same painting is donated as artwork for the lobby of a shelter, then the deduction would be limited to your cost basis or the amount you paid to acquire the painting.
4. Consider utilizing a Donor Advised Fund
Donor Advised Funds allow you to take a tax deduction now and recommend grants in the future. One benefit is the ability to spread your gift to multiple organizations or for a longer duration. Donor Advised Funds also provide for time to find an organization with a mission or philosophy of support that aligns with your values.
5. Involve family in giving
Most giving is done in the spirit of giving and the tax benefits are a bonus. Starting family traditions of giving, and sharing the sense of community and joy that comes with helping others is a great addition to the holiday season.