To claim a charitable donation in 2017 it must be postmarked no later than December 31, 2017 or it must be hand delivered to the charity before midnight on December 31, 2017. There is a fine line between Sunday night December 31, 2017 and Monday morning January 1, 2018. There are no exceptions.
At this time, we do not have a new tax law for 2017 or 2018. As I follow what is going on in Washington, DC, it appears that for many donors 2017 will be a better year for making donations than 2018. There are several tax changes currently being discussed that directly and also indirectly have the possibility of impacting the tax benefits of making charitable contributions. I recommend that if you are thinking about a charitable donation at the end of the year that you make it in 2017 instead of waiting until 2018.
How would you like to avoid paying tax on income AND take a tax deduction for a charitable donation? Here’s the deal.
The first consideration in making a charitable donation is where will the money for the donation come from? Will you take it out of your checking account, your savings account, or can you get the funds from another source such as a few shares of a stock or security investment you may have? Using the few shares of stock is a fantastic option to fund a donation. Here’s why.
Assume that several years ago, you purchased some shares in XYZ Corporation. Over time the value of the shares has increased and are worth more today than what you originally invested. Now, you could sell a few shares to raise the money that you want to give to the charity and even though there would be a very, very favorable tax rate on the capital gain, there would still be a tax bite. Do you want to see the tax bite disappear? Instead of selling the shares and taking the cash from the sale and giving it to the charity, just donate the number of shares equal to the donation you want to make to the charity. The tax bite goes away. There has been no sale so there is no tax. You have only transferred the shares from yourself to the charity.
In addition to avoiding the tax on the gain in value of the donated shares, you get a charitable donation based on the current market value of the shares on the day you made the gift. This is a double win for the donor/giver. The charity doesn’t care if they get a check or cash or XX number of shares. The charity will just sell the shares and take the cash sale proceeds and put the funds to work.
Take this example. Ten years ago, you purchased 100 shares of XYZ Corporation for a total investment of $1,000 or $10 per share. Today, the 100 shares are worth $2,500 or $25 per share. You want to make a $500 donation to ABC Charity. It will take 20 shares at $25 per share to equal $500. If you sell 20 shares for $500, you will have a tax gain of $300 to deal with since your original tax basis in the 20 shares is $10 per share for an investment of $200. So, you pay the long term capital gain tax on the $300 gain and then you donate the $500 cash to the charity. Looks to me like you have reached into your pocket in order to pay the tax.
If you transfer the 20 shares to the charity, you will NOT have a tax gain to worry with since you did not sell the shares but transferred/gifted the shares and you will get a charitable donation of $500 which is the market value of the 20 shares on the day you make the transfer. This is a fantastic way to make a charitable gift.
At the end of the day, out of your original $1,000 investment, you have made a $500 charitable donation and you still own 80 shares that are worth $25 per share or $2,000.
In order for this to work, the charity must be set up with an account to accept the shares. Many charities already have this in place but be sure to check this out in advance. Otherwise, it may take a couple of days to make this happen and you just may miss the December 31, 2017 deadline.