By Sheryl Rowling
SAN DIEGO — Giving tzedaka is part of our culture. It’s also part of the American way – since Congress encourages charitable giving by providing tax deductions. By taking advantage of these tax breaks, you can get more bang for your charitable bucks. In this column, I’ll cover three ways of giving that I consider to be the “basics.” (I will not go into the “fancy stuff” like charitable remainder trusts, charitable lead trusts, charitable annuities, etc.)
The first method of charitable giving is what you likely know: writing a check. This is straightforward. You write a check to a charitable organization and you get to deduct what you gave on your tax return. If you give $100 and you are in a 30% tax bracket, you will save $30 in taxes – making the net cost of your donation only $70.
The second method of charitable giving is to donate appreciated stock or mutual fund shares. Assuming you held the shares at least one year, this could provide some great tax benefits. When you give appreciated shares, your deduction is the full fair market value and you don’t pay tax on the gain! Let’s say you donate shares worth $1,000 to charity. If you paid $100 for the shares over a year ago, you get to write off $1,000 and you won’t pay tax on the $900 gain. If you are in a 30% ordinary tax bracket and a 15% capital gain bracket, your savings will be $435 ($1,000 x 30% plus $900 x 15%), making the net cost of your contribution only $565. Obviously, this strategy can only work with material contributions to charities that can handle stock transfers.
The third method of charitable giving is the best of both worlds – a donor advised fund (DAF). A DAF is like a charitable IRA. You get a deduction as soon as you put funds in, the money grows tax-free, and you can “take money out” by designating grants to charities of your choice. It’s easy to do, especially if you take advantage of a DAF through the Jewish Community Foundation of San Diego (www.jcfsandiego.org), recognized nationally for its outstanding efficiency and governance.
So, why is this the best of both worlds? You can write a check to your DAF or you can transfer appreciated shares. You can contribute more in a year you need more deductions and give grants out over time. Instead of writing a bunch of checks each year, you can simply add one or two larger chunks to your fund. Then you can send out as many grants as you want by going online, sending an email to the Jewish Community Foundation or calling them by phone. Your tax return will only show the contribution to the Jewish Community Foundation and the Foundation will keep track of all of your grants for you. You can even make your contribution at the end of December, get your write-off, and then use the funds to make grants over the next year or more!
Tzedaka is an important part of giving back, or as many Jews like to say, repairing the world. (tikkun olam). And, it’s important to stretch those charitable dollars when you can. Please consider a donor advised fund. You’ll thank me for it!
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Sheryl Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com