Don't Mess With Taxes

It’s the day after Christmas. That means we’ll find a handful of holiday cards in our snail mail box. And watch the neighbors stack boxes that held presents on the curb, even though our recycling and trash pickups are days away.

Those boxes also are a reminder that in many parts of the world Dec. 26 is Boxing Day. It’s typically a day to keep the season of giving going a bit longer.

There are many explanations as to how Boxing Day, and its name, came to be.

One commonly accepted origin story is that it began in the United Kingdom during the Victorian period, when household servants were given the day after Christmas off as a way to thank them for the work they had done preparing the estate owners' holiday celebrations.

Another Boxing Day narrative is that it commemorates St. Stephen, who's honored on Dec. 26. St. Stephen, the first Christian martyr, is celebrated for giving money to the poor. The giving was formalized when churches opened their alms boxes on his day and gave the proceeds to the needy.

Regardless of how it started, and even though it's just another day in the United States, Boxing Day is a good time to be mindful of your Merry Christmas and share your good fortune.

In case you’re stumped on how to do that, here are six giving suggestions for Boxing Day and beyond.

1. Turn your RMD into a QCD. You’re facing a Dec. 31 required minimum distribution (RMD), but have enough on hand, along with Social Security benefits, that you don't need the full RMD amount. But you definitely don’t want to face the Internal Revenue Service penalty, which is up to 25 percent of what you should have withdrawn. So give it away instead.

For the 2024 tax year, you can donate up to $105,000 of your RMD by using a Qualified Charitable Distribution, or QCD. Here you directly transfer your RMD amount to your chosen IRS-approved nonprofit.

The amount meets your RMD, but since it goes straight to the charity without passing through your hands or bank account, it's not taxable income.

Again, your retirement account administrator wants you do this during the work week, which ends next Tuesday, Dec. 31, so you need to get the process going. Now.

2. Donate cash to a charity. Keep the season of giving going beyond today's Boxing Day. Give to your favorite 501(c)(3) nonprofit by Dec. 31 and, if you itemize, claim the gifts as deductions on Schedule A.

Cash, in tax terms, isn’t necessarily currency, although it can be. A cash gift for tax purposes usually is a check, credit or debit card gift, or a texted contribution.

Regardless of how you give, for your donation count on your tax return, you must make it by Dec. 31. And be sure to get a receipt!

3. Donate goods to a charity. If you need to make room in your or other family members’ closets for all the new clothes you and they got yesterday, consider giving the old apparel to a charity. As with cash gifts, donations of clothing or household goods to an IRS-approved organization by Dec. 31 can be claimed as itemized expenses.

The items must be in good or better condition. You’ll also need to note the fair market value of the donations if you plan to claim them as a tax deduction. And, of course, the receipt rule applies here, too.

4. Donate a vehicle to a charity. Don't forget to check your garage for potential donations beyond the dusty boxes of old items stored there. I'm talking about that auto you haven't driven in years.

Lots of folks sell their old cars themselves. They like pocketing the extra cash. I don't. I mean, I'd love the cash, but I don't want to mess with strangers coming to my house and checking out my vehicle. So the hubby and I usually trade in our old autos. One year, though, we donated a car.

Although auto donations are not as easy from the tax standpoint as they were way back when we did so, vehicular gifts still are a viable philanthropic and tax-saving option. If you’re a regular listener of NPR programs, you know this.

Basically, auto donation tax law now says the amount that you now can claim as an itemized charitable deduction depends in part on how the charity uses the vehicle. Generally, you're limited to a $500 deduction. But if the organization sells the auto, your deduction depends on the price that the nonprofit got for the auto. You'll get a firmer idea of your potential tax break when the charity sends you the IRS-required statement with the details so that you'll know how large a deduction you can claim. So, auto donors essentially are giving away the machine without a firm idea of its tax value at donation time.

Yeah, as mentioned, it’s a bit of a hassle. But still, the car — or truck or boat or other motorized vehicle — donation option is a choice that some of us prefer to selling a jalopy and then having the new owner keep bugging them about issues with the vehicle.

5. Donate appreciated stock. If you're doing some last-minute reassessing of your portfolio and find an asset that no longer fits your investing goals, you might be able to help your balance sheet and your favorite charity by donating appreciated assets.

The keys here are giving away stock or other assets that have increased in value. And that increase must be from long-term gains, that is, on property, including stock, that you've owned for more than a year.

Why not just sell the asset, you ask, and then give the money to the charity? Wouldn't that make things easier for the nonprofit?

As to the first question, if you sell the long-term asset yourself, you'll have to come up with the taxes due on your capital gains. If, for example, you have a stock that's gone from being worth $1,000 when you bought it two years ago to $2,000 today, by selling it yourself, you'd owe capital gains tax on the $1,000 profit (I'm using simplified basis/profit amounts for illustrative purposes) at either the 15 percent or, if you're a higher-income earner, 20 percent. That would cut $150 or $200 out of the $2,000 that you would be able to donate to your charity.

As for question number two, most major nonprofits are equipped to deal with stock donations. The asset can be added to the organization's holdings and sold later when the group might have more of a need for the money. Or the organization can sell it immediately. So you're actually giving the charity more money and a money management choice.

Again, this takes some administrative work, so contact your asset manager and/or broker now to get this asset donation done by Dec. 31.

And, one more time, follow the regular IRS donation rules. The big three big are —

1. Don't miss the Dec. 31 end-of-tax-year deadline.
2. Make sure your charity is IRS qualified.
3. Substantiate/document your gifts.

6. Give away some of your wealth. You don't have to limit post-Christmas giving to charity. Some people make substantial financial gifts to family and friends, without any tax consequences for the recipients. Such generosity not only gets the giver added thanks, but also helps reduce the amount of their eventual estates subject to taxation when death and taxes finally converge.

The tax code allows you to give up to a specific gift amount, known as an annual exclusion, each year. For 2024, that's $18,000 per person. The exclusion amount is adjusted annually for inflation, so if you’re already thinking about 2025, it goes to $19,000 next year.

But for 2024, you can give 18 grand each to as many people, relatives or otherwise, you want. And it's per taxpayer, meaning you and your jointly-filing spouse get the same tax-saving gifting opportunity. So get out your checkbook and start writing, or at least do so by Dec. 31.

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