December 2, 2019
Christmas trees, lights, carols, Santa commercials, packed stores, sale flyers, Salvation Army bell ringers, and fundraising letters. Is it just your imagination or does it seem like you are getting significantly more “asks” at this time of year, not just for your time but also for your donations?
It actually is not your imagination. We are currently in the middle of what the nonprofit world refers to as the “Year-End Giving Season.” This is the time of year when nonprofit receive the bulk of their annual gifts. According to Guidestar, more than 50% of organizations surveyed said they receive a majority of their annual contributions between October and December.
Is there some magic associated with giving in the last few months of the year that isn’t true at other times of the year? While there may be some psychological factors that encourage us to be more generous around the holidays, there’s typically no financial benefit to waiting until the end of the year to donate. In fact, most organizations would probably prefer to receive gifts throughout the year rather than having a spike in donations at year end. Scripture has much to say about giving and living a generous lifestyle, but it never indicates that there are better times of the year to give than others.
The timing issue is actually a result of the tax benefits in the U.S. tax code that are associated with charitable giving. Taxpayers may receive a tax deduction for giving to certain nonprofit organizations for cash donations up to 60% of their adjusted gross income, but the gifts must be made within a calendar year to qualify for the deduction in that tax year. For this reason, many people begin to look in December at their giving for the year in relation to their income and realize that they have an opportunity to give more in order to maximize their tax deduction.
People who are over age 70½ may also have an opportunity to reduce income taxes by making a Qualified Charitable Distribution from an Individual Retirement Account (IRA). Everyone older than 70½ is required to take a distribution out of their IRA annually and pay the income taxes, whether they need the income or not. If they haven’t needed to pull from their IRA, they may find themselves being forced to take this distribution at the end of the year, even though they may not want to increase their taxable income. If, however, they choose to send the distribution to a nonprofit organization rather than take it themselves, they can avoid paying the income taxes on that amount.
There are reasons other than just the desire to maximize tax deductions that someone may want to consider additional giving at year end. Often, a year-end bonus from work will create a giving opportunity in December. Or someone may want to give a portion of his or her total financial increase for the year, including the growth in their investment portfolio. We have clients who call faithfully every year in December to find out how much their total net worth increased for the year so they can give a portion of it away. Investment growth is a wonderful opportunity to give the actual appreciated asset rather than cash, avoiding the capital gains tax on the growth of the asset and allowing someone to give even more.
As the holiday season approaches, many companies will offer a matching program for any donations made by their employees. And private matching opportunities also exist, where you can match other donors’ contributions to a charity you support. These matching programs can be a great incentive for everyone to make their gifts during the giving window for maximum impact of their donation.
Whether you’re giving away cash or investments, donor advised funds (DAFs) are a great vehicle for your charitable contributions. This simply means that your contribution is placed into a DAF account where it can be invested and grow tax-free. Afterward, you’re able to make recommendations on grants from your account to your favorite charities. Using a DAF, donors may receive immediate income tax deductions and reduce or eliminate capital gains, gift, and estate taxes.
While there can be valid reasons – other than procrastination – to wait until year end to make a charitable contribution, the most important thing to remember is that we are instructed by God to give generously and joyfully at any time. And if we can get a tax benefit by doing it before year end – even better!
If you would like more information on year-end giving or other charitable giving strategies, we are ready to help. Please contact a Ronald Blue Trust advisor at 800.987.2987 or email [email protected].
*This content has been updated since its original posting on December 5, 2016.