Year-End Charitable Giving: There’s a strategy to writing that check

It’s that time of year again! Bell-ringers and red kettles at the store, toy drives at school, and mailboxes bursting with year-end appeals from charities.

It’s that time of year again! Bell-ringers and red kettles at the store, toy drives at school, and mailboxes bursting with year-end appeals from charities.

Nonprofits know that one-third of annual giving occurs in December – and for good reason. In addition to supporting worthy causes, many of us take those final steps to reduce our taxable income by giving to a registered nonprofit designated as a 501(c)(3).

As many also have discovered, it’s easy to write a check. But like any aspect of financial planning, thinking strategically allows us to maximize the value of charitable giving to benefit both the recipient and the supporter.

Following on a topic from our last Thirdly, in this month’s newsletter we focus on three strategic issues tied to charitable giving:

  • The new and old rules of giving cash to charity;
  • Donating your IRA’s Required Minimum Distribution (RMD);
  • Analyzing and identifying well-run charities

Giving properly under the new tax code

Among many changes in the tax code implemented this year, the standard deduction rose from $6,500 to $12,000 per person. Experts at the Tax Policy Center anticipate this will significantly affect behavior: the number of people itemizing could drop from 30 percent last year to just 10 percent this year.

The new rules also mean that a married couple filing jointly must have more than $24,000 in itemized deductions before they can itemize and therefore deduct philanthropic donations. Before you consider year-end giving as a tax strategy, check with your tax professional to ensure it makes sense for you to itemize in 2018.

What hasn’t changed is the ability to deduct up to 60 percent of your adjusted gross income (AGI). If you choose to give more, you can carry the excess forward for up to five years.

It’s great to be 70.5: Donating your RMD

For those fortunate individuals who have celebrated at least 70 – and a half – birthdays and have an Individual Retirement Account (IRA), there’s an option to gain the tax benefits of charitable giving without having to itemize.

Once you turn 70.5 years old, you are required to take out at least 3.65 percent of your IRA’s prior year-end balance – a RMD – as taxable income. However, through a Qualified Charitable Donation (QCD), you can give all or a portion of your RMD directly to a qualifying charity, and not pay any income taxes on the funds donated.

If you opt for a QCD, keep a few things in mind:

You must request that your IRA custodian send your contribution directly to the charity; the funds cannot come to you first.

Starting this year, your IRA custodian will send you an IRS form 1099-R noting that all money distributed from your IRA is taxable. It will be up to you and your tax professional to identify QCD funds as non-taxable on line 15B of your form 1040.

Finally, if you’re feeling extra generous and it fits with the financial plan we’ve built, it is possible to donate more than your RMD as a QCD, up to $100,000, non-taxable.

“Here’s a charity I’m considering – can you check them out for me?”

This is one of our favorite questions from clients. We know how important it is to ensure charities are using your donated funds wisely to maximize outcomes for those they serve.

While the CWM team is always happy to review nonprofit candidates for you, there are also steps you can take to gauge a charity’s financial and operational health.

First, visit one of several online tools that compile the financial data all charities are required to report under IRS Form 990, such as Charity Navigator, Charity Watch,, GiveWell, and Guidestar.

Search for an organization and look at key metrics:

  • Program ratio: Program expenses divided by total expenses, which should be greater than 75 percent.
  • Overhead ratio: Non-program expenses divided by total expenses, or the inverse of the program ratio. Ideally, this will be 25 percent or less.
  • Asset ratio: Net assets divided by total expenditures. If the organization’s net assets are greater than three to six times total expenses, it may signal that they are using assets inefficiently. In other words, they are sitting on excess money rather than using it for the stated mission.
  • Cost-to-raise-funds ratio: Contribution revenue divided by fundraising expenses, which ideally is less than 25 percent.

Of course, there are exceptions to these rules. Operations and programs that require high-value assets will adversely affect a charity’s asset ratio. For example, a charity that provides equine therapy to individuals with disabilities may have higher overhead – land, barn, horses, veterinary bills, equipment, and more – than that of a small volunteer-run food bank. However, these benchmarks provide a solid starting point to compare and prioritize nonprofits.

If you have more questions, please reach out to us anytime. We’re always here to serve as a sounding board for your charitable giving and other financial strategies.

Enjoy supporting great causes and Happy Holidays!

Brian Lockett, CFP®

Vice President, Certified Financial Planner

P.S. It's fun how children can bring out the magic of the holidays. Our boys have been almost inseparable from their new bear slippers and pajamas, which they received this week before their photo with Santa. (And yes, Adam really is missing his two front teeth.)

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