Charitable Giving: Creating your personalized strategy

Giving cash directly to an organization is the most common and easiest way to give to charity. When giving cash, you're generally allowed to deduct the full amount of the gift (up to 60% of your adjusted gross income (AGI) to public charities, and 30% to private foundations).

Giving long-term, appreciated securities – such as stock – has a dual tax-benefit. First, you are entitled to an income-tax deduction for the full market value of the securities on the date of transfer (up to 30% of your AGI for gifts to public charities, or 20% to private foundations). Second, neither you, nor the receiving charity, recognizes and pays any capital gains on the transfer. This means the charity receives more money and you receive a higher income tax deduction.

As outlined in "Charitable giving and tax deductions," traditional retirement accounts, such as 401(k)s or IRAs, generally require account owners to begin taking taxable distributions at age 73. The amount that must be taken each year is based on your age and the prior year's ending account value.

Donating assets directly from a traditional or Roth IRA to a qualified charitable organization is called a qualified charitable distribution (QCD), which you're eligible to make once you're 70 ½ or older. QCDs can satisfy your required minimum distribution (RMD) and achieve a lower AGI (and thus lower your tax bracket).

Be careful: Making deductible contributions to your IRA during or after the year you reach age 70½ will result in a dollar-for-dollar reduction in the tax deductibility of future QCDs.

You may also be able to donate real estate, business interests, tangible personal property such as collectibles, or ordinary-income property such as inventory. The rules and considerations around donating these types of assets can be more complex and may require an independent appraisal and specialized tax services.

You may not want to donate securities held for one year or less. If a security has been held for less than a year, then the amount of the deduction is generally limited to the cost basis of the security rather than its current value.

In addition, you may not want to donate securities that have decreased in value. These securities can be sold and the taxable loss may then be used to offset other taxable gains in your portfolio.

Giving from your employer-sponsored retirement account does not qualify for QCDs. This means a distribution will result in taxable income, reducing the amount you give to charity. QCDs cannot be made from employer-sponsored retirement plans, including SEP and SIMPLE IRAs.

It may be less beneficial to give from Roth IRAs. These accounts do not have required distributions during the owner's lifetime, and distributions from the account are already generally tax free. All else being equal, it may be preferrable to give assets from a traditional IRA.