Charitable Giving Before December 31: Strategies for Rochester Donors

The final weeks of the year are when most charitable giving happens.

Appeals arrive in the mail, the season puts generosity on everyone’s mind, and there is a deadline attached, because a gift has to be made by December 31 to count for this year.

Most people give first and think about the tax side afterward, if at all. A little planning ahead of time can mean the same generosity goes further, both for the organization and for you.

First, the Question That Decides Everything

Before any strategy matters, there is a threshold question: do you itemize?

Charitable contributions are an itemized deduction. If your total itemized deductions do not exceed the standard deduction, your giving does not change your tax bill at all.

Since the standard deduction was substantially increased several years ago, the large majority of households now take it. Many people are surprised to learn their donations have not been reducing their taxes for years.

That is not a reason to stop giving. It is a reason to give strategically, because there are approaches that can put you over that threshold.

Bunching Your Giving

Bunching is the most useful idea in year-end charitable planning, and it is simple.

Instead of giving a similar amount every year and falling just short of itemizing each time, you concentrate two or three years of giving into a single year.

In the bunched year, your itemized deductions clear the standard deduction and you get a real tax benefit. In the intervening years, you take the standard deduction. The charities receive the same total support, and you capture a deduction you otherwise would have missed entirely.

The obvious concern is that organizations depend on steady support, which is exactly the problem the next idea solves.

Donor-Advised Funds

A donor-advised fund separates the timing of your deduction from the timing of your giving.

You contribute to the fund and take the deduction in that year. The money can then be distributed to charities over the following years on whatever schedule you like.

This pairs naturally with bunching. You make one large contribution, claim it in a year when it helps you, and still support your organizations steadily rather than in a lump.

Give Appreciated Stock Instead of Cash

This is the strategy most often overlooked, and for people with taxable investment accounts it can be the most valuable one available.

If you own stock that has gone up in value and you have held it more than a year, donating the shares directly is generally better than selling them and donating the proceeds.

Done properly, you can:

• Deduct the full fair market value of the shares
• Avoid paying capital gains tax on the appreciation entirely
• Give the charity the same value it would have received in cash

Selling first and donating the cash means paying tax on the gain, which leaves less for everyone. The direct transfer avoids that.

One caution: this works with appreciated positions. If an investment has lost value, the better approach is usually to sell it, capture the loss for tax purposes, and donate the cash.

Qualified Charitable Distributions

If you are old enough to be taking required distributions from an IRA, this one deserves your attention.

A qualified charitable distribution lets you send money directly from your IRA to a qualifying charity. The amount is excluded from your income rather than deducted from it.

That distinction matters. Because the money never enters your income, it can help even if you take the standard deduction, and keeping your income lower can have knock-on benefits for things tied to income levels, including certain Medicare premium calculations.

For charitably inclined retirees, this is frequently the single most efficient way to give. The transfer has to go directly from the account to the organization, so the mechanics matter.

Keep the Right Records

Documentation is where otherwise valid deductions fall apart.

The essentials:

• Any contribution needs a bank record or written acknowledgment from the organization
• Gifts of 250 dollars or more require a written acknowledgment from the charity that states whether you received anything in return
• Noncash donations have their own rules, and larger noncash gifts may require an appraisal
• If you received something of value, a dinner, an auction item, tickets, only the amount above that value is deductible

Also confirm the organization actually qualifies. Not every worthy cause is a qualifying charity, and personal fundraisers for individuals generally are not deductible no matter how deserving.

Mind the Deadline

December 31 is the cutoff, and the details of what counts can be finicky.

A check mailed by December 31 generally counts even if it clears in January. A credit card donation counts when charged, not when you pay the bill. But a transfer of securities can take time to process, so those should be started well before the last week of the year.

If you are planning a stock donation or a qualified charitable distribution, start in early December rather than on New Year’s Eve.

How We Help Rochester Donors

Giving is personal, and the tax treatment should follow your intentions rather than drive them.

Through our advisory services, we help Rochester and Monroe County families structure their giving so it accomplishes what they want it to, whether that means bunching, donating appreciated assets, or using an IRA distribution.

The goal is simple: the same generosity, with less of it going to taxes and more of it reaching the organizations you care about.

The Bottom Line

Year-end giving rewards a bit of planning.

Check whether you itemize, consider bunching if you are close to the threshold, look at appreciated stock before you reach for the checkbook, and use a qualified charitable distribution if you are eligible.

Then give to the causes you believe in, knowing the gift is doing as much work as it possibly can.

Planning Your Year-End Giving?

If you would like help making your charitable giving as effective as possible, we are glad to look at it with you.
Contact us before the year closes.

Disclaimer: This article is for informational purposes only and should not be considered tax, financial, or legal advice. Individual circumstances vary. Always consult a qualified professional regarding your specific situation.