What’s the best way to give to charity?

Dear Chris, 

I agree with some of that but not all of it exactly as stated.

Since inflation has perked up and financial markets have struggled, gifting to charity has declined some, yet charities are more needed than ever. So, I certainly would join the chorus that urges anyone who is able to make donations to whatever causes are important to them.

As for how to give, I would not say “…always give away something you don’t want.” If you don’t want it, a charity might not either. Many charities are approached about receiving a gift of some form of property only because the owner can’t sell it. If the charity accepts the property, it will own a hard-to-sell asset and that does not usually help the charity.

The IRS can take issue with gifts of property, too. Your tax deduction for a given donation depends on several factors, with the fair market value often the central issue. There have been several incidents in which the IRS went after donors for claiming an inflated fair market value for property that was difficult to sell such as personal effects, used cars, land, and vacation timeshares.

The speaker you heard is correct in his suggestion that there are often better ways to give than writing a personal check. Probably the two most common are gifting shares of financial assets and Qualified Charitable Distribution, or QCDs. 

Shares of stock, exchange-traded funds, mutual funds and other publicly traded securities are often easily valued. When you donate shares of an appreciated security, your deduction is based on the fair market value, but the unrealized appreciation is not taxed. You give not just the shares but the potential capital gain as well. Most charities are tax exempt so when they sell, they will not pay the tax either but will receive the cash from the sale.

Anyone age 70 ½ or older with an IRA can make a QCD from the IRA. There is no personal check involved here. The check is either from a special checkbook tied to the IRA or sent from the company holding the IRA directly to the charity made payable to the charity. Done correctly, the amount donated is not counted as a taxable distribution. For those 73 or older subject to Required Minimum Distributions, or RMDs, the donation can count toward the required amount.

There are quirks to both of these techniques but in the right situation, they can be better than writing a personal check.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line. 

Dan Moisand is a financial planner at Moisand Fitzgerald Tamayo serving clients nationwide from offices in Orlando, Melbourne, and Tampa Florida. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some reader questions are edited to aid the presentation of the subject matter.