♦ DO YOUR HOMEWORK – The good works that charities do often overlap, and some charities are more effective than others. Websites like charitynavigator.org and charitywatch.org can help you compare established charities to find out, for example, how much of your gift will go to charitable work versus administrative and fundraising overhead. While it costs money to run a charity and it also costs money to raise money, if expenses exceed 25-percent of a charity’s revenue, ask why. If the charity cannot give you a good answer, you should consider giving elsewhere.
♦ DON’T SELL AN APPRECIATED ASSET TO MAKE A CASH – GIFT If you own Apple stock that you bought in 2000 for $2 per share, don’t sell it now at $200 per share to raise the cash to make a charitable gift. Although you will get a deduction for your cash gift, you will also be liable for capital gains tax on the difference between the $200 sale price of the stock and the $2 purchase price. You will have less after-tax cash to give the charity and your deduction will be limited to the amount of your gift. Instead, make a bigger gift and get a bigger deduction by giving the stock to the charity. The charity can then sell the stock without having to pay capital gains tax and you will get a deduction for the full fair market value of the stock at the time of the gift.
♦ MAKE GIFTS FROM YOUR IRAs – If you make your loved ones the beneficiaries of your traditional IRAs after you die, they may have to pay income tax on most of what they receive. However, if you make charities your beneficiaries, there will be no income tax. So to the extent you can, name charities as beneficiaries of your retirement plans and use your non-taxable assets for making gifts to loved ones.
If you have begun taking required minimum distributions (RMDs) from your traditional IRA, you can give up to $100,000 of your annual RMD to charity. Although these gifts are not deductible, you will end up paying less tax because the gifted portion of your RMD is not taxable.
As always, talk with your trusted advisors to find out how to make charitable giving a win-win for you and the charities you support.