Giving cash is often the simplest way to make a charitable contribution. When I say cash, I include writing a check, paying with a credit card, and literal paper currency.
While these are easy ways to make the gift, they are not always the most optimal – for you or for the receiving charity. If you have several charities you wish to support at one time, writing check after check and mailing them off is time consuming.
Giving online is easy enough with a credit card, if a bit monotonous to re-enter the same data repeatedly. I’ve more than once tried to get through all my year-end contributions via online credit card donations on December 31, which led to my credit card ultimately locking up. I suppose American Express thought some very charitable fraudster got a hold of my card.
Credit card giving has a hidden downside for the charity as well. They pay anywhere from 2-5% on that contribution to cover the processing fees. A friend of mine explained that his large church pays about $30,000 in credit card processing fees a year. That’s real money for a non-profit!
Alternative Ways to Give
If the only way you will give to charity is through a cash option, by all means do it. However, sometimes you can help yourself and the receiving organization by giving in another way.
One of the most tax-friendly ways for an individual donor to give is with a contribution of appreciated securities. The donated stock or mutual fund must be one you’ve held for more than one year. Rather than liquidate the stock, you transfer the security directly to the charity. The charity then sells the stock and keeps the proceeds.
You as the donor take the tax deduction at the value of the stock on the day you transfer the asset. (I’m no tax expert, so to make sure you appraise the value appropriately, work with your tax advisor or attorney on the valuation).
Some brokerages take several days or even up to a month (especially at the end of the year) to execute stock transfers to charity. Keep that in mind if you want to donate appreciated stock as part of your year-end giving.
Another way to reduce both the cost and the workload of making your charitable gifts is to utilize a donor-advised fund. Providers of donor-advised funds (DAFs) such as DonorsTrust offer a vehicle that works as your own charitable savings account.
DAFs are public charities, so your contributions into a fund are fully tax deductible. There are a number of benefits to giving into such a fund rather than making multiple gifts directly to the many charities you support:
- With a DAF, you make one contribution into the fund that can in turn support multiple organizations. This is particularly valuable when giving a stock gift. One transfer and one sale by the DAF provider yields resources that can easily be designated to any number of groups, either immediately or over time.
- DAFs allow you to outsource the check-writing process. A simple email or grant advice offered through an online interface will send the DAF provider into action. The provider handles the due diligence, check-writing, and any back-end communication.
- DAFs allow for more complex gifts such as closely held stock and real estate or other real property. Given the complexity of these contributions, many non-profits have little to no experience accepting such gifts, or simply don’t have protocols in place to do so. DAFs are often more familiar with these processes.
- Unlike giving with a credit card, there are no processing fees for making a grant, which means the receiving charity gets the full amount of the requested contribution. DAF providers charge small fees to the donor, which allow the provider to operate. When working with a mission-oriented DAF such as DonorsTrust, you can think of that fee as a gift unto itself for the work the provider does in advancing your shared values.
Giving in the Best Way Possible
Charitable giving is a selfless act that benefits our civil society. However, there are more advantageous ways to give that enable you to have an even greater impact than you originally thought.
As you think through your final 2017 charitable gifts, consider the different ways you can make your charitable intent go farther by giving appreciated stock or closely held stock and by using a donor-advised fund.