Christmas is the Time for….

Giving.  The Birmingham region has a national reputation as one of the most generous giving communities in the country.  United Way of Central Alabama annual fund raising consistently ranks tops in the nation and exceeds the giving of many cities much larger than Birmingham.

As we put Thanksgiving behind us and approach Christmas and all of the ongoing holiday festivities, let’s remember to include families and people who are struggling.  Here are 7 ways you can give:

  1. Time. A physician and his wife who are close friends of mine spends every Christmas morning serving free meals at Community Kitchens of Birmingham.  What a great way to celebrate the true meaning of Christmas.  Jimmie Hale Mission and so many organizations like them need volunteers to help serve their community.
  2. Clothes. My test is, “If you haven’t worn it in two years, give it away.”  I’m guessing we all have a closet full of clothes that would fail this test.  It’s getting really cold out there and you and I can simply grab a warm overcoat.  But too many people living in our city don’t have that option.
  3. Cash. When I see the Salvation Army kettle bell ringers, I know it’s Christmas!  They, and other organizations like them depend on your cash giving during Christmas to fund their many worthwhile programs so be willing to give them your support.
  4. Checks. If you can use a deduction, writing a check to charity provides the proof you need for a tax deduction.
  5. Appreciated securities. While it’s been a rocky year for the stock market, most investors have enjoyed a bull run over the past several years and own stocks that have large gains.  If you own a stock worth $2,000 that you paid $1,000 for, a sale will trigger a $1,000 capital gain.  If you were considering writing a $2,000 check to your favorite charity, you could give them the stock and use your cash to buy the stock back.  You still have $2,000 worth of your stock the cost basis is now $2,000…you’ve allowed the charitable gift to ‘wash away’ the taxable gain.
  6. Donor Advised Fund. For larger gifts, a donor advised fund (DAF) is an excellent choice, particularly if you haven’t fully made up your mind how much you’re giving to which charities.  The Community Foundation of Greater Birmingham does an excellent job of managing funds and services for their donors.  For example, you write them a check for $10,000 and get a deduction this year for the gift.  Then as you decide how much and which charities you wish to support, you have them send those gifts in your name (the name of your donor advised fund).
  7. Qualified Charitable Distribution (QCD). If you are 70½ or older this calendar year, you must take Required Minimum Distributions (RMDs) from your IRA(s).  Typically, your broker sends you a check for your RMD which you, in turn, deposit and must report as ordinary income on your tax return.  If, during the year, you make a gift to a charity, you report that deduction on your tax return as well.  You can short-cut the process by having your broker pay your RMD (or a portion of it) ‘directly’ to the charity.  One advantage, in addition to being a simple short-cut, is that this direct gift-transfer has the effect of lowering your Adjusted Gross Income (AGI) which, in turn, lowers the threshold for deducting itemized medical expenses, miscellaneous deductions, as well as (potentially) the income adjusted surcharge for Medicare Parts B and D.  This gifting strategy is limited to $100,000 annually.

A little planning, please…

The new tax law, Tax Cuts & Jobs Act (TCJA), cut taxes for most tax payers by lowering tax rates and increasing the standard deduction from $12,000 to $24,000 for families.  It also eliminated many tax deductions.  As a result, the percentage of people who will file an itemized tax return will drop from about 30% to below 10%.  One strategy for capturing the charitable tax deduction is called ‘charitable stacking’.  What you do is make several years’ worth of gifts in a single calendar year, perhaps using a donor advised fund, and itemize your tax return in that year.  In future years you use the standard deduction and repeat the process periodically.