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For small gifts, cash is king. When you're making a gift of $50 or $100, it's easiest to just pay it right out -- it doesn't usually make any sense to jump through any special hoops. If, however, you're thinking about a larger gift -- perhaps $1,000 and up, although the threshold is up to you -- it makes sense to consider some alternatives that may give you some additional benefit.
If you make a gift to charity, you can generally deduct it if you itemize deductions on Schedule A of your annual tax form. Indeed, for many, tax benefits are a major factor in choosing how much to give. Yet there are also some other benefits available for certain types of charitable gifts. Let's discuss a few of these in more detail.
Say you were smart or lucky enough to buy shares of Dell
If you're charitably inclined, however, you may be able to avoid those capital gains. For instance, if you wanted to make a $2,500 gift, you could sell some of your stock to raise cash and then write a check to your chosen charity. But the stock sale would still generate a capital-gains tax for you.
The better way is to give shares directly to your charity. For most charities, federal tax law allows you to deduct the full current value of your shares just as if you had given cash. As an added benefit, because you don't sell the shares yourself, you don't owe any capital-gains tax. Charities are tax-exempt organizations, so if the charity decides to sell the shares, it also won't owe any tax. The net result is more money to you. The greater the capital gains are on the stock you give, the more money you save.
How do you actually make a gift of stock? If you hold your stock in electronic form at a brokerage firm, the best thing to do is call your brokerage company and find out what information it needs to transfer the shares. Because stock gifts have become popular, it's likely that your charity has a relationship with a broker who can receive the shares and then keep or sell them in accordance with the charity's investment-policy guidelines. Once you know what information your broker needs to make the transfer, a phone call to your charity should get you that information.
Charitable gift annuities
Most people don't think about charitable giving in terms of what they get back. But sometimes, your charity may offer merchandise to donors who give a specified amount, and that may be an enticement for you to give a little more to reach that level. Yet there are a number of slightly more complicated ways to make gifts to charity that involve getting more than just a small item in return. By structuring your gift in a way that takes advantage of these methods, you can not only fulfill your charitable wishes but also provide an income stream for yourself and your family.
In its simplest form, a charitable gift annuity is an agreement between you and your charity. You agree to give the charity a certain amount of money (or stock). In return, the charity agrees to make regular payments back to you or anyone you choose.
Getting into the details of the gift annuity reveals a significant amount of flexibility. You can choose whether you will receive payments monthly, quarterly, or annually. In determining the amount of the payments you receive, most charities use a payout rate that is based on your age; the older you are when you start receiving annuity payments, the higher the payout rate. You can choose either to take payments immediately or to defer them. You can have payments made just to you for the rest of your life, or to another person for the rest of that person's life, or to both of you until the last one of you passes. As long as your gift meets the rules for a gift annuity, you have a lot of leeway in defining how your particular annuity will work.
Even though you get something back from your charity, you are still generally entitled to a charitable deduction. Although the calculations are complex, the main idea is that you get a deduction for the amount of your gift to charity minus the value of the annuity payments that you will receive from the charity. The difference is your net gift.
Because charitable gift annuities involve a long-term commitment by your charity to you and your family, not all charities have the infrastructure in place to offer them. For charities that do offer gift annuities, most have minimum donation amounts to justify the additional work necessary to administer and manage them. However, more and more charities are seeing the benefit of getting a donation now while assisting their donors with their financial planning in the future.
If your charity has a fundraising coordinator or planned-gift advisor, you should talk to that person to find out whether the charity offers gift annuities. Even if it doesn't, you may still be able to work with a local community foundation to structure a gift that will benefit your chosen charity.
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