Light through a forrest — photo by Derek Sears

Year-End Giving

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Your charitable income tax deductions are one of the few tax planning opportunities completely within your control. The amount and timing of your gifts are all up to you. By carefully planning, your charitable gifts–and completing them by December 31–you may enjoy the satisfaction of giving while increasing your tax refund or reducing taxes you would otherwise owe next April. What Should You Give?

Cash: Charitable gifts are most often made in the form
of cash and checks. If you itemize your tax deductions, gifts of cash can eliminate or reduce tax on up to one-half of your adjusted gross income (AGI).*Be sure to maintain receipts, acknowledgments, or bank records related to your gifts.
Securities: Making gifts of stocks, bonds, and/or mutual funds can bring extra tax savings. When making such gifts, always consider what the securities originally cost in relation to what they are worth today. When securities have increased in value, you should normally give them directly rather than sell them and give from the proceeds. When owned for more than a year, securities used to fund a gift can be tax-deductible at full fair market value, not just their original cost. Giving in this way also enables you to bypass capital gains tax that would otherwise be due if the donated securities were sold Gifts of securities are deductible in amounts up to 30% of AGI. If you own securities that have decreased in value since you have owned them, consider selling those securities and making a charitable gift of all or a portion of the cash proceeds. In addition to an income tax deduction for the cash contribution, this creates a loss you may be able to deduct from other taxable income.
Retirement Accounts: This year, if you are over the age of 70 1/2, it is possible to make tax-free charitable gifts directly from your IRA. Giving in this way assures that these funds, whether or not you are required to withdraw them, will never be subject to income or estate tax, this may make it possible to give more at the same or lower cost than in the past. Check with your IRA administrator for more details regarding the amount and timing of such gifts.
Other Assets: You may own real estate or certain other properties that could also be good choices for charitable gifts. Whether you make your gifts in the form of cash or other property, charitable gifts may serve to reduce your taxes not only for this year, but for as many as five future years as well. Your financial services provider can furnish you with additional information and the forms necessary to complete your gifts in a timely and tax-efficient way. Looking to the future as a result of changes in the tax law, most Americans find they can now leave more to loved ones and/or their charitable interests free of federal estate and gift taxes. As you review your plans for the future, you may wish to consider the following alternatives:
- Gifts that feature income for you or others: A number of methods exist that allow, you to make charitable gifts while providing generous payments for you and/or others along with current and future tax savings and other financial benefits.
- A gift through your will or living trust: After providing for loved ones, you can direct that a specific amount, a percentage certain property, or all or a portion of what remains in your estate be devoted to charitable use, there is no limit to the amount of charitable gifts that are deductible for gifts and estate tax purposes.
- Retirement plan accounts can be subject to both income and estate taxes, relatively little of these funds may be left for heirs. That is one reason it can be wise to make gifts following your lifetime from retirement funds. As noted earlier, retirement accounts may also be a good choice when deciding how to make current gifts as well.
- Life insurance policies that have built up cash value but are no longer needed for their original purposes can make excellent charitable gifts. You may also find that including a charitable beneficiary for all or part of the proceeds of a life insurance policy can be a convenient way to provide a gift through your estate.