Carnegie Investment Counsel Blog

Charitable Donations: How To Pay It Forward

Posted by Bob Carroll on Nov 12, 2014 11:42:00 AM

Giving 101:

As the calendar year approaches its end, many people start receiving what seems like an endless series of requests for charitable donations. Even if you are in the witness protection program, colleges, community organizations, and places of worship know where to find you this time of year!

Gifting is a great way to leave an impact on the organizations and people you care about most. Gift-giving falls under the application of tax code, so be sure you consult a qualified tax advisor regarding your specific situation. However, before you take out the checkbook and make your donation or gift to a family member, there are a few other things to keep in mind when it comes to giving.

Giving To Charities:

With funding sources of many organizations shrinking, non-profit organizations rely more and more on the generosity of their members and supporters. Gifts to qualified non-profit entities are tax deductible. A qualified charity is one that is registered as a 501(c)(3) with the IRS. Religious organizations are also exempt. Be sure to evaluate the quality of the charity you select by using a  third-party evaluation tool such as

As with most things involving the IRS, there are a host of rules that govern how a gift is valued and the amount you can claim as a deduction. Unless you are doing some significant gifting, most gifts will qualify as deductible in the year they are made.Charitable DonationsPhoto Credit: Iraq Red Crescent volunteers distributing water in Sinjar.

Ways to Make a Gift

Do you write a check or donate property?  What if you donated some of your appreciated shares in a stock?  How you make your gift matters, and your method of choice should be in accordance with your financial plan.  In most instances, the goal is to maximize both the gift and your tax benefit.


Cash is the easiest and most widely used form of making a gift.  It is as easy as pulling out the checkbook or taking a $20 bill out of your wallet.  While it is always helpful to maintain good records of your gifting, the IRS requires formal support (i.e., receipt, canceled check, thank you letter) for cash contributions of $250 or more.

Property Donation

Property donations are great.  It is one of those rare “win-win” situations where you can finally clear out the clutter in the basement or attic and get a tax write-off, to boot.  The IRS allows you to deduct the fair value of any item donated to a charity.  The only question is whether that “precious” bowling trophy is really worth $1,000. There are guidelines on how to value your donation and there is an IRS form for property donations of $500 or more.

Appreciated Securities

As a savvy investor, your portfolio is likely filled with some holdings that have accumulated in value. If these holdings are maintained in a taxable account (i.e., brokerage account), you have the ability to donate these securities to charity in lieu of making a cash contribution.

Donating appreciated securities has a few key advantages. First, your donation is equal to the market value on the date the gift is made. Second, the IRS allows you to avoid capital gain taxation.

For example, you buy 100 shares of stock at $75.  In over a year, the market value increases to $100.  You have a $25/share long-term gain on the shares. If you were to sell this stock, you would be subject to a long-term capital gain of $375 (=$2,500 gain x 15% capital gains rate). By donating these same shares to charity, you could take a tax deduction of $1,000 (=100 shares at $100/share).

Gifting of appreciated shares is a great way to whittle down a concentrated position that may have built up over the years. Most charities are equipped to receive the shares. Since this method requires the transfer of shares, do not wait until December 31st. Give yourself some time to make the transfer. Contact us if you need help planning and executing this.

Charitable Gifts From IRAs

The rules governing gifts from IRAs are in flux at the moment. Over the past few years, the IRS has made it possible to make a gift from your IRA to a charity in lieu of taking a required minimum distribution (RMD).  You do not receive a charitable deduction.  However, you are also are not taxed on the distribution, either.

Currently, this provision in the tax code has expired for 2014. Stay tuned, since this is a popular feature and may likely be renewed again. Until that happens you can still make a contribution from an IRA, but the distribution will be taxable and you will be allowed a corresponding charitable deduction.

 Gifts to Family Members

You may also wish to make gifts to family members. Studies have shown that there is an inverse relationship between the size of the gift and the size of the person receiving it. This explains why grandchildren tend to emerge from the holidays in a higher tax bracket. (Okay, maybe not, but it sure seems that way!)

Whether it’s for birthdays, special events or holidays, the receipt of money is usually very much appreciated.  However, unlike a gift to a charity, gifts to family members are not deductible no matter how much you think your kid is a “charity case.”

Here are a couple of things to keep in mind when it comes to making gifts to family members.

  • The recipient of a gift does not have to pay tax on the value of the gift.
  • The IRS set the annual gift exclusion for 2014 at $14,000 per person.  This means that you can make a gift up to $14,000 to someone without filing a gift tax return.  As a couple, you can each gift $14,000 to the same person or $28,000 in total.
  • If you are motivated to jump start a college fund, the IRS allows a contribution of $70,000 to an individual 529 account in a single year.  In essence, the IRS allows you to make 5-years' worth of contributions in one year.  However, if you use this approach, you will have used up your annual exclusion for that person for the next 5-years.
  • Unless you are a very high net worth family, you are unlikely to pay any federal gift tax.  Your lifetime federal gift tax exclusion is $5.34 million ($10.68 million as a couple).
  • In general, if you gift shares of stock, the cost basis of the stock carries over to the recipient of the gift.  In the right situation, this is not a bad way to shift highly appreciated securities.  If the recipient is in the 15% tax bracket or lower, it is possible for them to incur no capital gains.

If you'd like help crafting the right strategy for your charitable donations, please ask us!

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Topics: Giving

Bob Carroll

Written by Bob Carroll

Bob Carroll is the Managing Director in the firm’s Cincinnati office. He actively listens and discovers what issues are most important to his client. Bob focuses on the unique financial planning and wealth management needs of his clients and their families. As a Certified Divorce Financial Analyst™, Bob has developed a specialty in helping clients before, during, and after divorce.

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