The end of each year is a notable time for making charitable donations because it’s the last opportunity to glean an income tax benefit before year’s end. That compels some to make last-minute decisions with their gifts. While many charities can benefit from a one-time gift, donating through a community foundation can extend the impact of a donation and meet year-end tax deadlines.
“These foundations are a means through which donors can ensure the gifts they’re giving and the associated tax benefits are advantageous to everyone involved,” says Margaret Medzie, vice president of development and donor engagement at Akron Community Foundation.
Smart Business spoke with Medzie about tips for year-end giving.
What options do donors have when it comes to giving?
Donations can be made directly to a charity, which is fairly easy to do — just pick an organization and write a check. But, with tax year-end closing in, time is of the essence. Some individuals have a complex gift to give, like appreciated stock, which isn’t always easy for nonprofits to turn around quickly.
Others may not be in a position to decide before year’s end which nonprofits to support with their gift. Community foundations can offer both types of donors an alternative.
What common misconceptions may lead to a less effective donation strategy?
One common misconception is that cash is always the best to donate. Appreciated securities actually equate to a larger dollar–for-dollar donation and enable the donor to avoid capital gains taxes. Community foundations can also accept other types of gifts, such as real estate, life insurance and annuities. Depending on how gifts are structured, the tax benefits can be more compounding than cash.
There’s also the false belief that donors need to pick a cause to support when they make the contribution in order to get a tax break. Through a community foundation, donors can donate as much as they wish now, then identify organizations to support over time. This is possible through what’s called a donor-advised fund, and it can be set up in as little as a day. With a donor-advised fund, donors get the impact of the gift on current year taxes and can spread donations to one or several organizations later. This is a great option to offset a taxable event when a donor can’t decide where to give.
How much work do donors need to put into managing charitable contributions made to a community foundation?
Fairly little work is needed by the donor when they start a charitable fund at a community foundation. Donors and their accountants need only track their contributions to the fund, and the community foundation does the rest of the work. They process the donation, vet charities to ensure they’re in good standing with the IRS, provide quarterly accounting, and send the grant checks to nonprofits both locally and across the U.S. — they wholly support donors’ grant-making objectives. They can also offer insight into local community needs, should the donor desire it.
What is important to consider before making a year-end charitable donation?
The first consideration is to determine how much to give and the most tax-beneficial asset to donate — cash, real estate, annuities, etc. That conversation is best had between the donor and his or her professional adviser. They can work with a community foundation to identify the best fund option for their giving style.
What is the timeline for making a year-end donation?
Most organizations are open on Dec. 31 so they can be available to accept last-minute cash donations. Those who wish to transfer securities or mutual funds before year’s end need to act sooner. Stock gifts to a community foundation should be initiated by Dec. 22 and can sometimes be processed in as little as a day, whereas mutual fund shares can take three to five days.
Call your broker directly and follow up to make sure he or she handles your request promptly. That way, you can be sure to get the contribution completed during this tax year.
Insights Philanthropy is brought to you by Akron Community Foundation