Happy Holidays! Whether you’re trimming the tree, lighting the menorah, or still trying to recycle Thanksgiving leftovers into new recipes, we at Atlantic Capital Management wish you happiness and prosperity this holiday season!
In keeping with the spirit of giving common during this season, we’re going to use our final column of the year to talk practically about year-end giving as it relates to both charitable and estate-planning scenarios. Beyond the obvious good that comes from making gifts or donations to the many charitable organizations that serve the public interest, there are also some significant tax advantages to charitable giving that make it an important part of any wealth-management strategy. Our experience serving our clients over the past 27 years has given us a lot of insight into the best practices for year-end giving; we’ve distilled the most practical into the list below.
Give to qualified organizations: There are many qualified, reputable organizations serving thousands of worthwhile causes; there are also many unqualified, disreputable groups willing to take your money. Use the Exempt Organizations Select Check tool at the irs.gov website to verify the legitimacy and tax-exempt status of the group(s) you choose to give to.
Pay attention to the rules and guidelines: As you might expect, the IRS has a plethora of rules and guidelines that cover charitable giving. For example, monetary donations of any amount, to any type of organization, must be documented properly in order to qualify as tax deductions. So whether you bought popcorn from the Boy Scouts or put up the cash for a new wing at the local hospital, you’ll need to provide bank records like canceled checks or statements to corroborate your contributions. Keep good records of your donations, including dates, amounts, organization names, etc. If you donate material goods to an organization, get a receipt if you do it in person, or keep written records that include time, date, and value of goods if you utilize a drop-off box or unattended location. Finally, be mindful of the technicalities involved in the tax exemptions; for instance, you cannot deduct charitable giving if you use any of the “short forms,” like the 1040A or 1040EZ, when you file your taxes.
Don’t forget about gifting for estate planning purposes: While it’s not in the same purview as charitable gifting, don’t overlook estate-related year-end giving, either. You can reduce the overall value of your estate, and thus the overall estate tax burden, by making annual gifts to family members, organizations, and even your spouse! The annual exclusion rule allows individuals to make an unlimited number of gifts of cash or property, up to $14,000 each, completely tax free. Married couples (including same-sex couples in Massachusetts) can combine their annual exclusions, effectively doubling the amount of each gift to $28,000 even if only spouse makes the gift.