The Giving Season

These days, it’s hard to determine when the Holiday season really begins now that you can pick up your holiday decorations with your Halloween candy, but I like to think of Turkey Day as the beginning of the season both of gift giving and charitable donations.  If philanthropy is in your future in the coming weeks, let’s review some guidelines.

If we are giving to individuals, keep in mind that your annual gift exclusion for 2023 is $17,000.  What does that mean?  Essentially, you can give anyone $17,000 in 2023 for any reason.  It’s not tax deductible to you nor is it taxable income to them.  If you, as a couple, want to give your daughter the down payment for a new home, you (spouse 1) can write a check for $17,000 and spouse 2 can write a second check for $17,000 and no taxing entity will care (the mortgage company will probably care but that’s another issue).  Let’s say you’re single but your daughter is married.  You can give your daughter a check for $17,000 and her spouse a second check for $17,000 and again, no taxing entity will care.

We’ve all seen the crowdfunding pages for all sorts of things from medical treatments to business startups.  This sort of donation generally falls into the category of tugging the heartstrings rather than providing a tax benefit.  Make sure you vet the campaign organizer before sending any money and treat it a little like heading to the casino – your cash may or may not end up where you think it will and when it’s gone, it’s gone.

Looking past those familial / crowdsourced gifts and moving on to more corporate donations, we have a wide variety of options.

If you itemize your deductions, you can include cash and non-cash donations. Let’s say you bought 100 shares of Apple stock back in the 1980s when it was a little computer company no one had ever heard of.  You would have been out of pocket about $10 to purchase the shares (total, not per share).  Decades later, those 100 shares would now be worth $14,780 and you’d be looking at over $2k in capital gains tax to sell them and donate the proceeds to your local food bank.  On the other hand, you could give that food bank a call, get their receiving account information, and donate those 100 shares with no capital gains to pay AND a tax deduction.

If you’ve opened a Donor Advised Fund (DAF), you can donate those Apple shares to your DAF with the same result.  Once the shares are in the DAF, you can liquidate them (with no taxable event) and give the proceeds to one or more organizations now or at some point in the future.  Most Donor-Advised Funds have a minimum contribution limit for your first donation (as low as $1k and as high as $25k, depending on the company supporting the DAF) and some have donations restrictions but, in general, if the receiving organization is a 501(c)3, you’re good to go.  Not sure if the group you are donating to is a 501(c)3?  Just ask them for their IRS tax-exempt certificate – all legitimate charitable organizations have them and are more than happy to send you a copy.

If you are older than 70 ½, you can make a charitable donation directly from your IRA and not have to declare the distribution as income on your taxes.  If you are older than age 72, you can count your charitable distribution towards your Required Minimum Distribution, reducing the amount you have to distribute to make the IRS gods happy.

Finally, while this might be the giving season, it is also the scamming season so be on the look out for the clues that could lead you to giving dollars to an organization whose goal is enhancing the lifestyle of the scammer. One solid strategy is to check out the charity on one of the charity review sources (Charity Navigator, CharityWatch, and Candid are good resources).  If you are planning on donating cash, use your credit card.  Don’t let yourself feel rushed – any real charity is going to love receiving your money, regardless of when you donate it.  If you are planning on donating from your investment account, there’s a reason that the financial world still requires a certain level of paperwork.  In addition to giving the donor a little breathing room to think through the donation, these forms also require at least a little bit of information that can be used to verify the organization (and track things down if necessary).

As you plan your giving this year, build out a strategy that finds a balance between warming your soul and helping a organization to improve the world around you.