by Kate Redden, CFP™, ChFC, Financial Advisor, Ronald Blue & Co.
Christmas trees, lights, carols, Santa commercials, packed malls and retail stores, SALE flyers in the mail, the Salvation Army bell ringer – and fundraising letters. Is it just your imagination or does it seem like you are getting significantly more “asks” than normal at this time of year, not just for your time but also for your donations?
It actually is NOT your imagination and we are currently in the middle of a season in the non-profit world commonly referred to as “The Year-End Giving Season”. This is the time of year when non-profits may receive the bulk of their annual gifts. In fact, according to the National Center for Charitable Statistics, more than 50% of organizations surveyed said they receive a majority of their annual contributions between October and December.
So is there some magic associated with giving in the last few months of the year that isn’t true for giving at other times of the year? While there may be some psychological factors that encourage us to be more generous around the holidays, there is typically no financial benefit to waiting until the end of the year to donate. In fact, most organizations would probably prefer to receive those gifts throughout the year rather than seeing a spike in giving at the end of the year. The Scriptures have much to say about giving out of what we have been given and living a generous lifestyle, but it never indicates that there are more preferable times of the year to give than others.
The timing issue is actually a result of the tax benefits associated with charitable giving that are written into the U.S. tax code. Taxpayers may receive a tax deduction for giving to certain non-profit organizations for donations up to 50% 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 may have an opportunity to give more in order to maximize their tax deduction.
For those who are over age 70 ½, there may also be an opportunity to reduce income taxes by making a Qualified Charitable Distribution from an IRA. Everyone over the age of 70 ½ is required to take a distribution out of their IRA every year and pay the income taxes, whether they need the income or not. If they haven’t needed to pull from their IRA throughout the year, they may find themselves at the end of the year being forced to take this distribution, yet not wanting to increase their taxable income. If, however, they choose to send the distribution to a non-profit organization rather than take it themselves, they can avoid paying the income taxes on that amount.
There are also 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 their total financial increase for the year and that includes the growth on their investment portfolio during the year. I work with one client who has called faithfully every year in December to find out how much his total net worth increased for the year so that he can give a portion of that! Investment growth is also a wonderful opportunity to consider giving 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. A qualified financial advisor or tax advisor can be a great resource for charitable giving techniques.
As the holiday season approaches, many companies will offer a matching program for any donations made by their employees. And there are even private matching opportunities. For example, a Healing Waters donor has agreed to match all donations until the end of 2016, up to $60,000! These matching programs can be a great incentive for donors to consider making their gifts during the giving window, which are often the last few months of the year, for maximum impact of their donation.
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 of the year. And if we can get a tax benefit by doing it before year end – even better!