Advisor's Quarterly Update

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Year End Charitable Giving – Timing Is Everything!

Clients often procrastinate to the end of December in making charitable gifts. As midnight on December 31st looms, professional advisors have been known to receive calls from anxious clients questioning how to make year-end gifts to their favorite charities and be assured of receiving their income tax charitable deduction in the current tax year. Being aware of the IRS rules for gift dates can be helpful in providing guidance to clients.  Here are questions you might receive on or just prior to December 31st, along with responses to assist clients.

Q. I’m mailing a check to a charity. Does the charity have to receive my check this year to get my charitable deduction?

A. That depends.

Mailing via US Postal Service. Under the “mailbox rule,” if you are mailing the check via the US Postal Service the postmark date will be the gift date. The same is true if you are using the US Postal Service for overnight delivery. 

Private delivery service.  If you are using a private delivery service such as FedEx or UPS, the date the check arrives at the charity is the gift date.

Client Tip.  If the mailing is taking place on or just before December 31st, have the client take the envelope with the check to a US Postal Service branch window and have the postal clerk stamp the postmark date on the envelope.  A gift made late in the year should be mailed through the post office, certified or registered mail, return receipt requested to establish the delivery date. Merely depositing the envelope in a mailbox late on December 31st if the letter will not be postmarked that day will result in a gift that must be deducted in the new tax year.

Q. There’s no time to mail my check, so I’m going to deliver the check at the charity’s office. Can I take my charitable deduction this year?

A.  If you deliver the check to the charity on or before December 31st, you can take your charitable deduction this year.

Client Tip.  If you are delivering a check to the charity on or before December 31st, do it during business hours and have someone sign and date when the check was received.

Q. I’m making a gift online to charity using my credit card.  If I make the gift on or before December 31st, do I get my charitable deduction this year?

A. Not necessarily.  Gifts to charity using a credit card are complete on the transaction posting date.  That is the date on the statement showing the name of the charity and when the charge was posted to the cardholder’s account.  That could be a day or days after the donor initiates the gift, which could extend into the new tax year.

Q. It’s December 30th and I’ve instructed my brokerage company to transfer stock (or mutual funds) to charity. Will I get my charitable deduction this year?

A. It depends. When stock or mutual funds are transferred electronically, the gift is complete on the date the shares arrive in the charity’s account. That becomes the gift date. At year-end many brokerage companies are overwhelmed with transactions. Transfers can be delayed such that the shares arrive in the charity’s account in the new tax year. In that case, the donor must take the charitable deduction in the new tax year.

Q. I have paper stock certificates that I want to give to charity. I’m told I have to also complete stock powers and that I should mail the paper certificates and stock powers separately to the development office. What is my gift date?

A. If the postmark on both the paper certificates and the stock powers are 12/31 or earlier, the gift is complete and that becomes the gift date.  This would be the same if the client is personally delivering the stock certificates and stock powers to the charity.  

For clients making significant charitable gifts, the issue may arise as to how much of the charitable deduction the client is permitted to use each year. You might get this question:

Q. I’m making a significant gift to a favorite charity this year. Can I use the entire charitable deduction this year, or are there limits to how much I can use?  If I can’t use the entire deduction, will I forfeit my deduction? 

A. Deductibility is governed by what is commonly referred to as the “30/50 rule.”  If you are making gifts of cash to a public charity, you can use the charitable deduction up to 50% of your adjusted gross income in the year of the gift. If you are giving appreciated securities that qualify for long-term capital gain treatment, you can use the charitable deduction up to 30% of your adjusted gross income in the year of the gift.  In both cases, if you have any unused charitable deduction you can carry the unused deduction forward for up to the next five tax years, subject to the same 30% or 50% limitation of adjusted gross income each year.

Clients will value the information you can provide about charitable giving and the ways they can ensure that they obtain all of the tax advantages associated with these gifts.