The Time is Now for Year-End Giving
With the 2015 calendar year drawing to a close, an easy and rewarding way to help you achieve both your financial and philanthropic objectives is to increase deductions on your federal income tax return through charitable giving. Timing and attention to requirements is critical, though! Some types of gifts must be received by us before the year’s end. Donors must pay close attention as to the type of gift, the method by which it is transferred, and the applicable deadlines.
Below are the deadlines that must be met for different types of gifts to comply with IRS requirements and allow for gift processing and acknowledgement so that the donor may treat the gift for 2015 tax purposes.
Cash or Check
1) Gifts of cash or check hand delivered to our office by noon on December 30.
2) Gifts made by check dated on or before December 31 and mailed via the U.S. Postal Service with a postmark stamped on or before December 31.
3) Checks sent by a medium other than U.S. mail (such as FedEx or UPS) must be received at our office by noon on December 31.
Credit card gifts are effective on the date your card is charged (allowing time for the charge to be completely processed), thus:
1) Credit card gifts mailed via U.S. Postal Service, FedEx and UPS must be received at our office by close of business on December 28.
2) Credit card gifts via telephone must be completed by close of business on December 28.
3) Credit card gifts made online must be completed by December 28.
Publicly Traded Appreciated Securities
The effective date of the gift depends upon how the securities are transferred—hand delivered, U.S. mail, FedEx, UPS, private courier, or electronic transfer—and who they are delivered to. Privately held stock and mutual fund shares typically require more time and may not be able to meet the deadline of December 31. Publicly traded securities, however, should not be a problem.
For detailed information on how to gift securities to the United Way of Pioneer Valley (UWPV), you may access our one page procedure sheet on the UWPV website by clicking here. The form includes the name and contact information of our local stockbroker representative. The gift must be credited to the UWPV account by close of our stock brokerage firm’s business on December 31 to count as a 2015 gift.
Gifts from an IRA
These gifts can be made in potentially either of two ways: the IRA charitable rollover (restricted to IRAs only) if legislatively enacted for calendar year 2015 or by making a withdrawal followed by a charitable gift from an IRA or other qualified retirement plan including 401(k), 403(b), and Keogh plans as examples.
The IRA charitable rollover provides a simple, tax advantaged method for those over age 70 ½ to make a charitable gift. Its extension for 2015, however, is bogged down in Congress. A vote is scheduled for December 11. Timing, deadlines and other requirements will be dependent upon final statutory language.
The rollover procedure calls for a direct transfer from the donor’s trustee or IRA administrator to the charitable organization. As such, the amount of the gift—up to a $100,000 maximum—is not taken into income nor is a corresponding deduction available. It may be used, though, to satisfy a donor’s required minimum distribution (RMD) for 2015. This gift is called a qualified charitable distribution or QCD. The rollover provision has a history of being re-enacted at the last minute, so it is most likely to be available for 2015, but not as of this writing. Its status will be publicized once Congress acts.
As an alternative, a charitable gift may be made via an IRA withdrawal followed by a subsequent gift to a charitable organization (remember there is a 10% premature distribution penalty if the donor is younger than 59½ and required minimum distributions must begin by age 70½). This alternative works with qualified retirement plans as well as IRAs. In this case, the withdrawal amount must be included in the donor’s income, and, assuming this amount is gifted to charity, a corresponding deduction is available to “zero out” the transaction. If your gift is made by check, refer to the section above entitled gifts made by cash or check.
Note: The potential downside of this method is that the donor’s adjusted gross income will be inflated by the amount of the withdrawal even though subsequently deducted. Adjusted gross income is a threshold upon which a number of deductions, exemptions and credits are based, and this may negatively impact some donor/taxpayer’s income tax liability. The 50% of adjusted gross income deduction limitation also applies to non-IRA charitable rollover gifts.
Roth IRA Conversion during 2015
Another strategy that some individuals incorporate into their long range financial plan, but that creates a current income taxable event is a Roth IRA conversion. If you converted your traditional IRA to a Roth IRA during 2015, you will have triggered additional income tax liability. A charitable gift made in the same calendar year as a Roth conversion can provide a deduction that can reduce this increased liability. A window of opportunity exists if you have not considered this tax reduction idea. If your gift is made by check, refer to the section above entitled gifts made by cash or check.
SUMMARY: Year-end charitable giving provides individuals with an opportunity to obtain desired, last minute tax deductions while advancing their philanthropic objectives; however, close attention must be paid as to the type of gift, the method by which it is transferred, and the deadline that must be met for the gift to qualify as being made and deductible in 2015.
Questions should be directed to Steven Toth, JD, MS, CLU, ChFC at UWPV.
Disclaimer: United Way of Pioneer Valley does not provide legal, tax, accounting or other related professional advice. Such advice must be sought from the reader’s own professional advisors. The information provided here is for general informational purposes only.