Charitable giving the smart way

December is the most popular month for charitable gifts. Before you start the process, consider these six important steps:

Confirm that the charity is legitimate and financially sound

Earlier this year, the IRS warned against a big uptick in charitable frauds. “Scam artists commonly use charities as a cover to lure honest people into providing money and sensitive personal information,” said IRS Commissioner Chuck Rettig. “Protect yourself, and make sure you are dealing with a reputable group before making a donation.”

Access the IRS’s Exempt Organizations Select Check Tool to confirm that the organization is a registered public 501(c)(3) organization and has legitimate IRS Employer Identification Number. Then see what experts say about the organization and how much of your donation goes to supporting programs, versus salaries and marketing. The Better Business Bureau’s Wise Giving Alliance, Charity Watch, GuideStar, Charity Navigator and GiveWell are helpful resources.

Ditch the cash

Never send cash donations or wire money to someone claiming to be a charity. If you are planning to send a check, your payments must be postmarked by midnight Dec. 31 to qualify for a deduction, and pledges aren't deductible until paid.

Donations made with a credit card are deductible as of the date the account is charged, so if you are a little late in the process, you probably should stick to credit cards. Let the bull run

U.S. stock indexes are up over 20% this year, which makes it a great time to gift appreciated securities from a taxable investment account. Doing so allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains. Use the tax code

If you want a tax advantage from your giving, you have to itemize deductions. One way to get there is to “bunch” or “bundle” future gifts into one year. One way to accomplish this is by establishing a donor advised fund, which allows you to make multiple years’ worth of donations up front.

An added bonus of DAFs is that you can contribute appreciated securities from a taxable investment account, as well as cash. Divert RMDs

For those who are 70½ and older and need to withdraw money from an Individual Retirement Account, consider a qualified charitable distribution, which allows you to direct some or all of your required minimum distribution to a public charity (not to a private foundation, nor to a charitable supporting organization or a donor-advised fund).

You don’t get to count a QCD towards an itemized charitable deduction, but you avoid being taxed on the money. As a result, using a QCD may be a smart way to give, because it can minimize your adjusted gross income.

You can transfer up to $100,000 a year from your IRA and you can give away more money than your actual RMD amount. A QCD can be tricky, which is why working with a CPA or CFP can be crucial.

Keep good records

For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property.

For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution and the amount given.