December 23, 2013
12/24/13 The end of the year is always a time when Hoosiers reexamine supporting a charity or school. Donors can help support organizations making a difference in their own communities and it is a good time to add up charitable donations for tax purposes. But tax laws can be tricky. While there are many tax-smart ways to donate, it can also be easy to make mistakes that cost a donor money they would rather see go to a good cause.
“People who want to donate to a charity need to do this before the end of the year to be able to take the tax deduction for charitable contributions,” said Todd Zeltwanger of Ancilla College.
Zeltwanger, the executive director of institutional advancement for Ancilla College, works with donors and gift-givers to the college and local foundations each year.
“There are a few things any donor wants to make sure of. If you donate property or artwork, you have to have a clear, assessed value on those gifts. Other donors trip up because they don’t pay attention to the fine print on things like giving stock to charity. And others miss simple details in the paperwork of donation, like getting proper acknowledgment for gifts in the year the gift is given,” he said.
Zeltwanger suggests a few important ideas for people interested in donating to local charities and foundations.
Give Away Your Winners
“This year has been a very good year for the stock market. That means you can donate securities that are worth far more than you paid for them. By giving a qualified charity shares of publicly traded stock you have owned for more than one year and that have increased in value, you may deduct the current fair market value of the stock—and you don’t owe a capital-gains tax,” Zeltwanger advised.
This is a double benefit for donors and charities. “Donating a few of the winners in your portfolio helps the charity and lowers your own tax bill.
Sell Your Losers and Donate the Proceeds
Zeltwanger, who works with donors to the private college near Plymouth, also cautioned that this strategy does not work for stocks that will be sold at a loss. Instead of donating the securities he suggests selling them first. “Don’t donate securities that are worth less than your tax cost. Instead, sell the losers in your portfolio, donate the proceeds to your favorite charity, like Ancilla, and use your capital losses to trim your tax bill,” he said.
If losses from the sale of stocks exceed gains, donors can deduct net capital losses of as much as $3,000 a year from wages and other income.
Look for Matching Grants to Make Your Gift Multiply
“There are also quite a few options for giving to local community foundations and charities that have matching grants in place. If you give to a charity with a matching grant, you are really doubling the benefit of your gift,” Zeltwanger said.
Community foundations and public broadcasting are two examples of fundraising organizations that often have large donors who offer to match a donations dollar-for-dollar during a specific period or pledge drive.
Ancilla College is launching a fundraising drive to match a major gift from an anonymous benefactor that will allow donors to have their contributions to the college for operations or endowment matched.
“Matching grants are powerful ways to get the ‘biggest bang for your buck’ when donating to a charity,” he said.
Get It In Writing
“We provide a receipt for all donations to the college, but you would be surprised how many people forget to ask for this documentation. For any gift of $250 or more you should get an acknowledgment from the charity saying whether or not you received any items like free tickets or gifts in return. If you didn’t get any ‘premium,’ make sure the charity says so and gives you a written description of the property you donated,” he said.
Don’t forget the receipt until you’re audited years later. You need receipts in the year you give the donation, Zeltwanger said. If you get something in return for a gift, you typically can deduct only the amount of your gift that exceeds the value of that benefit.
Make Sure You Agree on the Value
Whenever a donor makes a noncash donation like cars, real estate, antiques, shares in a family business, or artwork it’s very important to get the details right.
Zeltwanger noted, “donors can make the mistake of over pricing the value of a donation. If you donate an art print of ‘Dogs playing poker’ and claim a $10,000 value that later turns out to be $10, you’ve set up a painful problem with the IRS in the future. Car donations are often troublesome because what you think the value of a car is and the actual value when it is sold can create a gap.”
“Whenever you donate property, of any kind, get an appraisal from a qualified appraiser,” he said. The guidelines for property donations can be found on the IRS website as IRS Publication 561.
You Can Donate Through Your IRA
There are options for older Hoosiers who are looking for a way to support local charities. “You can transfer as much as $100,000 from an Individual Retirement Account this year directly to a qualified charity without having to include that amount in your income if you’re 70½ or older. This is for IRAs, not 401(k) plans and you can’t deduct transfers from IRAs as charitable gifts, but it counts toward your required minimum distribution,” he said.
Zeltwanger noted this technique can be very smart for many taxpayers because transfers aren’t considered income that would add to your income tax burden. But this may not work next year. The law allowing you to make these transfers is set to expire at the end of 2013, he said.
No matter what you do to support local charities, Zeltwanger cautions that you should see a financial planner or work with an accountant before making any large gifts. “People need to know the details and implications of giving a large gift to a qualified charity. Always work with an accountant or financial planner beforehand,” he said.