Giving Nicely

 November 30 2017     Anna Pfaehler

A favorite read for my children is The Nice Book by David Ezra Stein. The book gives simple examples of what it means to be nice. One of my favorites is “if you have more than you need, share.” As an adult, sharing moves beyond treats and toys with schoolmates. It develops into causes, charitable organizations with varying structures and maximizing impact.

The holidays create an atmosphere of giving. The potential transfers to the kinetic as having more than we need becomes sharing with those in need. While altruism may be the catalyst, the tax code often provides the medium. Below are two considerations for those looking to give this holiday season while maximizing the available tax benefits.

Appreciated Securities

The markets have had a great run the past year and you may have stocks, or other securities, with unrealized capital gains. If you were to sell the stock and then give the proceeds, you would recognize the gain which is taxable income. If you itemize deductions, you could then take a deduction for the amount contributed to charity. This would seem like a wash except the income from the gain can affect other thresholds that utilize your adjusted gross income such as Medicare Part B premiums.

Instead, consider giving the appreciated security directly to charity. You still can take a deduction for the donation but you will avoid recognizing the capital gain on your income tax return. This works best for securities held long term (at least 1 year and 1 day) because you can deduct the full fair market value of the stock. If held less than 1 year, the deduction is limited to the cost basis of the stock.

Qualified Charitable Distributions

If you are over 70 1/2, you can distribute up to $100,000 from an IRA directly to a charity. These qualified charitable distributions count toward Required Minimum Distributions (RMDs) and are not included in your taxable income for the year. Unlike with donating appreciated securities, you do not get to take the charitable deduction for the contribution. However, as mentioned above, you may be able to avoid certain other thresholds by keeping the RMD out of your income.

These types of contributions typically take longer for custodians and charities to process. If you are looking for a 2017 tax deduction, you should start the contribution process as soon as possible so that it will be completed by the end of the year.

Happy Giving!