Year-end is always a good time to make charitable contributions, but instead of rushing to make last minute donations, take the time to learn about ways to make your giving more efficient and maximize your tax deduction.
Here are some tips to help you give smarter.
Use the asset that is most advantageous. There are so many ways to give to charity. Most people are familiar with writing checks and making credit card contributions. Did you know that some charities (such as donor advised funds) accept unusual assets? For example, Jewish Communal Fund accepts (on a case-by-case basis) private stock, real property and other complex assets. And many charities can accept appreciated securities that are held for more than one year.
Donate appreciated long-term securities to maximize your tax savings. You can electronically transfer stock to a 501(c)3 public charity before year-end and receive an acknowledgement for a 2018 tax deduction. You may claim a fair market value deduction up to 30% of AGI, and you will not be subject to a capital gains tax on the appreciated portion of the contribution. If you transfer securities to a donor advised fund, once the stock is liquidated, you will be able to send money out to multiple charities.
Organize your giving and make it more tax-efficient. If you are involved with multiple charities, it’s probably time to consider using a vehicle to streamline your philanthropy. Some people choose to establish private foundations, but these are expensive to create and require you to manage the administration and oversight. More and more people are turning to donor advised funds (DAFs). You may have read that DAFs are the fastest growing charitable vehicle, and this because they are the most flexible and efficient way to give. There are now 460,000 DAFs in the nation. Last year $19 billion in grants was distributed from DAFs to charities in every sector, a distribution rate of 22%. Most DAFs can be opened with a minimum contribution of $5,000 and typical fund sizes range from $50,000 – $500,000. People have discovered that when they use DAFs, they only need to give their accountant the one receipt they receive when they establish or replenish their fund. DAFs eliminate all of the record-keeping and administrative hassle associated with charitable giving.
There are three simple steps to opening a DAF – complete an application, make a donation to set up the DAF, and recommend grants to your favorite IRS-qualified charities. When you make a contribution of cash or appreciated securities to open a DAF, an immediate deduction can be taken. Some DAFs allow you to recommend investments for the assets in your fund, and any earnings will not be subject to tax. This creates the possibility that assets in DAF may grow tax-free. Many DAFs can be managed on a secure website that provides access to account information and grant-making at any time. The DAF sponsor keeps track of all of the grants to charities and synagogues. Fundholders have the flexibility to set their own timetable for making grants to the IRS-qualified charities of their choosing. While grant-making activity is encouraged, most DAFs do not have an annual minimum distribution requirement. Therefore, the fund can last for several years before it would need to be replenished. And, with the changes in the tax laws and the loss of some deductions, this flexibility becomes quite useful.
Making a significant contribution now to a DAF by “bunching” what you would have contributed to charities over the next two to three years can enable you to reach the threshold to itemize your tax return and qualify for a maximum 2018 tax deduction. Please consult with your accountant regarding your own personal situation.
All donor advised funds charge a small administrative fee for these services. If you want to really maximize the impact of your giving, choose a donor advised fund that reflects your values and uses this revenue to support charities aligned with your funding priorities. Jewish Communal Fund leverages the participation of their almost 9,000 fundholders by donating a significant portion of our fees for UJA-Federation of NY’s annual campaign. Additionally, our endowment, The Special Gifts Fund, makes grants to projects and organizations in the NY Jewish community such as support for kosher food pantries and services for the elderly.
This year alone, Jewish Communal Fund made a gift of $2 million to the UJA-Federation of NY Annual Campaign. In addition, JCF approved grants of $840,000 from the Special Gifts Fund including support for a Digital Choice Food Pantry at the United Jewish Council of the East Side; free civil legal services from New York Legal Assistance Group; and the Community Initiative for Holocaust Survivors. The generous Fundholders who use JCF for their charitable giving not only streamline their own giving and maximize their tax deductions, but also enable us to make these large Community Gifts to enhance the New York Jewish community.