Rules for Last-Minute Donations to Charity
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Consumer Reports has no financial relationship with advertisers on this site.
Many Americans find the end of the year an opportune time to show gratitude by donating to charity. An estimated 30 percent of annual giving occurs in December, and 10 percent in the last three days of the year, according to Nonprofits Source, a digital marketing consultant for nonprofits.
American generosity is likely to peak this month even though the new tax law makes charitable donations less favorable, tax-wise. A report by the Tax Foundation, a nonprofit independent think tank based in Washington, D.C., says nearly 90 percent of Americans—up from about 70 percent—are expected to take the standard deduction for 2018, making them ineligible to write off their charitable donations.
That leaves about 10 percent of Americans who could still get a tax break from their donations. But some taxpayers on the borderline between itemizing and taking the standard deduction may try "bunching" their deductible expenses this year in order to make itemizing worthwhile. That means they actually may increase their giving in 2018, and give less in 2019.
A recent plunge in equity markets means giving appreciated stock may not offer as big a tax break as expected, says Jeff Fishman, a Los Angeles-based financial adviser. That's because the appreciated value that you can write off may not be as great as it was even a few weeks ago.
"Depending on one’s circumstances, it may now be more advantageous to donate cash," he says.
Regardless of your situation, be aware of the different rules that apply to different types of charitable gifts and how they’re delivered.
If You're Giving Cash
• U.S. Postal Service delivery. The U.S. Postal Service is not affected by the current partial shutdown of the federal government. If you’re mailing a check to a charity through the post office, your donation is good for tax-year 2018 only if the postmark on your envelope or package is before midnight Monday, Dec. 31, to conform with the Treasury Department’s “delivered when mailed” rule.
For proof, though, don’t just drop your envelope in the mailbox; it might not get postmarked until Jan. 2. If you're working against the clock, send it registered or certified mail. Keep the receipt and a copy of your canceled check for your file. Or send it via Express Mail and keep the receipt.
• Delivery by private mail service. If you’re sending a check to a charity through a private service such as UPS, the IRS’ “delivered when mailed” rule doesn’t apply. (Notably, it does apply when you send a tax return via a private mail service.) So if you must send a check this way, you’ll need to contact the charity on or before Dec. 31 to make sure that it received your payment. Ask for a confirmation via email, if possible.
• Credit card. If your donation appears on your credit card statement as a December charge, it’s good for 2018, says IRS spokesman Eric Smith. That’s the case even if the charity doesn’t get around to processing the donation and sending you a receipt until January.
• Text. When you donate to a charitable appeal by inputting a code into your cell phone, the donation date later appears on your cell-phone bill. If your gift shows up as a charge on your cell-phone bill made before Jan. 1, you can itemize it for 2018.
• Pay-by-phone account. In this case, you respond to a text message by linking to a mobile-optimized web page that takes your credit card information. So the date of donation is the same as when you pay by credit card. In other words, it’s good if it’s no later than Dec. 31. You should find that date on your monthly credit card statement.
If You're Donating Investment Securities
• Electronic transfers of securities. When you direct your broker to transfer securities to a charity, it’s considered a done deal only when the funds are transferred from your account into another account.
“With stock and illiquid assets, they can’t be in transit; someone has to own them,” says Karla Valas, managing director of advanced planning at Fidelity Charitable, a donor-advised fund connected with Fidelity Investments.
In real terms, the electronic transfer of ownership happens almost instantaneously with investment securities, Valas says. Many large charities have their own brokerage accounts, so transferring securities from your account to the charity’s happens as soon as your broker submits your order.
If you’re dealing with a smaller charity without a brokerage account and you’re concerned about your donated stock counting toward this year’s deduction, consider contributing through a donor-advised fund.
As the National Philanthropic Trust explains, a donor-advised fund is like a charitable savings account; you transfer your securities to it and get a tax deduction immediately. Then you can take your time deciding where the money should go. Once you’ve decided where the money should go, the fund takes responsibility for distributing your securities to the charities you’ve named.
Your donated securities are considered eligible for a tax deduction the moment you transfer them to the donor-advised fund because the fund is itself a charity by IRS standards. So you get a little edge, timewise. What’s more, the value of your donation for tax purposes stays the same even if the securities drop in value by the time they’re actually distributed to your named charities.
David Yeske, principal of Yeske Buie, a financial advisory located in San Francisco and Vienna, Va., says donor-advised funds are appropriate for anyone who gets a significant tax benefit from charitable giving. Valas notes that setting up such a fund through Fidelity Charitable takes a few minutes and costs nothing. The fund makes its money by charging an annual fee, maxing out at 0.60 percent of assets, or $100, whichever is greater.
• Stock certificates. In the rare instance that you’re donating actual stock certificates, you’ll need to make sure you’ve properly endorsed them; check with the issuing corporation for directions. If you’re mailing the certificates yourself, the same rules apply as for a mailed check: The donation date is the same as the postmark.
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