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Making charitable contributions using cash (including checks, wire transfers, and credit cards) is by far the most widespread way to give, for good reason: convenience. A 2016 study of high net worth donors (who use alternatives to cash more frequently than the donor population as a whole) revealed that 87 percent of donors use cash for donations, and roughly half of those donors use a credit card.
If giving cash is the easiest and quickest way to give, why not always use cash?
The main reason for most donors would be that using cash is the most expensive and least tax-efficient strategy. Why? Because cash does not deliver as many tax benefits as giving noncash assets. For those willing to take additional steps, a donor can add tax benefits, and either lower the cost of their gifts to themselves or make a larger gift at the same cost as using cash.
Convenience, however, is increasingly valuable in our time-squeezed world. Time is money, so donors have to weigh the extra steps of giving noncash assets against the additional tax savings or other benefits afforded. Some non-cash assets, like appreciated stocks or Direct-IRA gifts, require only one additional step and are almost as convenient as cash. Others require many more steps, which are justified if significant tax benefits are produced, like gifts of closely-held businesses and gifts of real estate.
After weighing options, if you still decide to give cash, you have three options:
1. Mail in a check the old-fashioned way to:
2. Wire-transfer the funds
3. Make a gift online with a credit card or electronic debit. Transaction costs reduce the funds realized from a card gift by about two percent, so some card donors elect to give two percent more to offset that cost.
Gifts of cash earn the donor a Charitable Deduction equal to the value of the gift, less any goods or services received. Interested in adding an additional layer of tax savings? Consider giving appreciated stock, real estate, or other noncash assets.
Besides convenience, giving cash instead of appreciated stock or property has advantages for a small number of scenarios:
- Cash is sometimes the only asset available to donors for gifting purposes.
- Donors who wish to make Direct-IRA gifts out of a ROTH IRA should instead take a withdrawal and donate the cash.
- Cash is the best funding asset for some types of gifts like charitable lead trusts.
- Cash allows higher deduction amounts (60 percent of Adjusted Gross Income (AGI) vs. 30 percent of AGI for noncash assets, with unused portions carrying over for up to five subsequent years).
- Using cash to fund some gifts like charitable gift annuities and some types of charitable remainder trusts require liquidity, and that need outweighs the tax advantages of using noncash less-liquid assets to fund the gift.