“It is perhaps a bitter irony of economic downturns that charities can fall on hard times when their missions are most important,” said Andy Oakes, financial planner at LeConte Wealth Management. “Unfortunately, it appears that charitable donations are projected to be down this year.”
LeConte Wealth Management suggests donors who are motivated and financially able to be charitable this year, should add a “charitable checklist” to the year-end tax plan to make sure that the charitable donation does the most good for the charity and for the donor’s taxes. These tips for a charitable checklist include :
- Know your charity. Make sure that the causes you support are accountable in how they pursue their mission. You might ask what percentage of donations goes toward administrative expenses. Any rate beyond 20 percent may indicate a lack of fiscal discipline. Verify their status as a “qualified” charitable organization, which can be denoted by a 501(c)3 designation. This can make a difference in how much you can ultimately deduct for tax purposes.
- Be a “deliberate” donor. Maximizing tax benefits takes careful consideration in how and what you donate. For example, rather than simply writing a substantial check, you could donate highly appreciated stock, which might be deductible at the fair market value of the investment and avoid capital gains taxation. Some arrangements like a charitable remainder trust allow you to benefit from an income stream generated by an asset that will ultimately go to charity. As with other financial planning considerations, charitable donations should be approached holistically in order to ensure that they properly coordinate with your overall financial picture and optimize any applicable tax benefits.
- Put your accountant on your Christmas card list. Most of us do not think of our tax advisers until March or April, but by then, it can be too late to meaningfully take advantage of tax saving strategies. Before the end of the year, ask your accountant to help you construct a projection of your tax liabilities along with some advice about year-end planning to reduce taxes, increase deductions, etc. You also should verify how your charitable donations will be treated for tax purposes to determine 1) how much is deductible, 2) what documentation of the gift the IRS will require, and 3) from where the gift should come within your financial resources.
“At a time of year that promotes reflection on the blessings we have and charity for those who have not, be sure that your gifts don’t leave you owing more than you should to your least favorite charity, the IRS,” said Oakes.