To give is divine. To err while giving is human.
For many donors eager to nail down tax deductions, contributing to charity can be as simple as writing a check. But tax laws often can be surprisingly tricky. While there are many tax-smart ways to donate, it can also be easy to make costly mistakes.
The mistakes run the gamut. Many thorny problems, for instance, stem from uncertainty over how to value gifts. Other donors stumble because they don't pay attention to the fine print on such long-cherished techniques as giving stock to charity. And still others trip over paperwork issues, such as getting proper acknowledgment for gifts on a timely basis.
Many generous donors "have learned their lessons the hard and expensive way," says Victoria Bjorklund, a charitable-giving consultant and a retired partner at the law firm Simpson Thacher & Bartlett LLP.
How can donors avoid these traps? It may help to keep in mind the following (seemingly) simple ideas—as well as a few common errors to avoid:
Give Away Your Winners
This is an especially good year to consider giving securities that are worth far more than you paid for them. Stock prices this year have surged, and 2013 brought higher taxes for many investors.
This "could be a great strategy," says Justin T. Miller, national wealth strategist at BNY Mellon Wealth Management's office in San Francisco.
In a typical case, you give a qualified charity shares of publicly traded stock that have risen sharply in value and that you have owned for more than one year. You deduct the fair market value of the stock—and you don't owe a capital-gains tax.
If you donate appreciated stock you've held for a year or less (considered "short term" gains), you generally can deduct only your cost "basis"—that is, your cost for tax purposes—not market value.
Don't make the mistake of donating securities that are worth less than your tax cost. Instead, sell those losers, donate the proceeds to your favorite charity and use your capital losses to trim your taxes. Capital losses can offset capital gains on a dollar-for-dollar basis.
If losses exceed gains, deduct net capital losses of as much as $3,000 a year—$1,500 if married and filing separately from your spouse—from wages and other ordinary income. Carry over additional losses into future years.