When making charitable donations, especially at year-end, it’s important to be aware of IRS rules regarding timing to ensure that the contributions are eligible for a tax deduction in the current year. Below are the key guidelines for various types of donations, including cash, stock, and IRA distributions:
Cash Donations
Timing: For cash donations to be deducted in the current tax year, they must be made by December 31st. This includes checks, credit card charges, or payments made through electronic transfers.
Postmark Rule: If you mail a check, the donation is considered made on the date the check is postmarked, even if it is received in the next year. If you use an electronic transfer, the transaction is considered made on the date it is processed.
Documentation: Donors must have proper documentation, such as a bank record, credit card statement, or a written acknowledgment from the charity for donations of $250 or more.
Stock or Securities Donations
Timing: Donations of publicly traded stocks, bonds, or mutual funds are treated similarly to cash donations for tax purposes. The gift must be transferred by December 31st to count for that year. The date of transfer (not the date the donor initiates the transfer) is critical for IRS purposes.
Valuation: The fair market value (FMV) of the donated stock is generally deductible, as long as the securities are long-term holdings (held for over one year). If the stock is sold for more than $500, additional IRS reporting (Form 8283) is required.
Transfer Method: Donations must be completed by electronic transfer, and the securities must be out of the donor’s account before year-end. The donor should ensure that the charity is able to receive and process the donation by the deadline.
IRA Charitable Rollovers
Timing: IRA holders who are age 70½ or older can make direct contributions from their IRA to charity (Qualified Charitable Distributions, or QCDs). To qualify for a tax deduction for the current year, the QCD must be completed by December 31st.
Qualified Charitable Distribution (QCD): A QCD allows individuals to donate up to $100,000 per year directly from their IRA to a qualified charity. The donation is not included in taxable income, and it satisfies the Required Minimum Distribution (RMD) for the year.
Processing Time: Since IRA transfers can take time, it’s important to start the process well before year-end to ensure the transfer is completed. Donors should work with their IRA administrator and the charity to confirm the timing.
Special Considerations for Year-End Donations
Donor-Advised Funds (DAFs): Donations made to a donor-advised fund (DAF) are considered complete when the contribution is made to the fund, not when the money is distributed to the charity. The contribution must be made by December 31st for it to count for that tax year.
Non-Cash Donations: For non-cash donations, such as clothing or household items, donors must obtain written acknowledgment from the charity for donations over $250. These donations must also be made by December 31st.
Conclusion:
To maximize your tax benefits from charitable contributions, be mindful of the timing for year-end donations. Cash, stocks, and IRA rollovers all have specific requirements, and donations must be completed (or at least initiated) before the end of the year to qualify for the current year’s tax deductions. Always keep accurate records and confirmations of your donations, and consider consulting a tax advisor to ensure you meet all IRS requirements.
