Uncle SAM can help you with your yearend charitable giving. Here are two ways that you can use the tax laws to make charitable gifts and reduce your taxes at the same time.
Charitable Contributions of Stock
You should consider donating appreciated stock from your investment portfolio instead of cash. Your tax benefits from the donation can be increased and the organization will be just as happy to receive the stock.
This tax planning tool is derived from the general rule that the deduction for a donation of property to charity is equal to the fair market value of the donated property. Where the donated property is “gain” property, the donor does not have to recognize the gain on the donated property. These rules allow for the “doubling up,” so to speak, of tax benefits: A charitable deduction, plus avoiding tax on the appreciation in value of the donated property.
If you are considering the contribution of appreciated stock, you need to make sure that the shares have been held for more than one year and meet the criteria for the “qualified appreciated stock” deduction.
Additionally, if the property in question is OTHER ordinary income property (such as inventory), there are special limitations that apply. Not only that, if the capital gain property is NOT stock (such as artwork, jewelry, real property, etc.), there are other special limitations that may apply to the contribution.
Donating IRA Assets to Charity
The Pension Protection Act of 2006 introduced a provision enabling retirees to take tax-free withdrawals from their IRA provided the money is transferred directly to a qualified charitable organization of their choice. IRS rules mandate that individuals age 70 ½ and older take RMD’s from their IRA each year, regardless of whether the income is needed. These annual withdrawals are subject to ordinary income taxes. By making a charitable contribution from your IRA, you can satisfy your RMD amount without reporting additional income.
By donating to a charity, you can enjoy the satisfaction of knowing that you are contributing to a worthy cause while effectively lowering your tax bill.
While these are two significant ways of using the current tax laws to reduce your income, income taxes, and make charitable contributions, you should consult with your CPA or tax advisor before making a decision that alters your tax situation.
YEAR END PLANNING REMINDER
Have you done your yearend financial and tax planning? Don’t overlook these and other steps you should be taking at year end. Call us and set a time for your yearend review.
I hope that the only ice you encounter this weekend is found in your glass! Have a safe and wonderful weekend.