Whether due to the demands of the holiday season or just plain old procrastination, many taxpayers find themselves making significant charitable contributions close to the December 31st deadline for year end tax deductions. For some taxpayers, the timing of a deduction can have a material impact on the value of a deduction. For example, a $1,000 donation by a taxpayer whose marginal tax rate is 15% is $150 while the value of the same donation by a taxpayer subject to the top marginal tax rate of 39.6% is $396. For taxpayers who expect their marginal tax rates to decrease from 2013 to 2014, completing their charitable contributions by December 31, 2013 can result in significant tax savings. The following is a summary of the timing rules for various types of charitable contributions:
Cash or Check
If payment is made by cash or check, the contribution is considered made on the date of delivery or mailing, assuming the check subsequently clears.
Contributions charged to a credit card are deductible in the year the charge is made, even though not paid by the donor until the following year.
Credit Card Rebates
A charitable contribution deduction is allowed for the portion of rebated credit card purchases that are transferred to a qualified charity. However, unlike contributions charged to a credit card, these rebate contributions are not actually made by the use of the card. Rather, they are held by the credit card company in a custodial account for disbursement to charity. Accordingly, the charitable contribution is made (and deductible) when the rebates are transferred to the designated charity.
If a taxpayer delivers or mails a properly endorsed stock certificate to a charitable donee, the donation is considered made on the date of delivery to the charity or, if mailed, on the date of mailing. If the donor delivers the stock certificate to his or her bank or broker (as the donor's agent) or to the issuing corporation or its agent, the contribution is completed when the stock is transferred on the books of the corporation.
On December 26, 2013, Mrs. Cleveland instructed her broker to transfer 1,000 shares of stock (registered in street name) to her alma mater. The broker had physical possession of the stock. The transfer was completed on the broker’s books on January 2, 2014. Mrs. Cleveland cannot claim a deduction for the contribution if the stock until 2014.
If you have questions regarding the implementation of your charitable giving strategy, please contact Karen McCarthy at 216-928-5414.
This blog was coauthored by:
Natalie Takacs is a Senior Manager is our Personal Tax Advisory Group. With over 20 years of experience working in the areas of individual, trust, and estate and gift tax, Natalie is skilled in managing the complex tax issues and transactions that her clients encounter when making financial and business decisions. In her free time, Natalie enjoys traveling and spending time with her family.