| Fourth Quarter 2012 | story by DONI L. MOOBERRY, MOOBERRY FINANCIAL MANAGEMENT, LLC |
The usual push for year-end donations looks the same this year as every other year. My mailbox and email inbox have begun receiving a steady stream of solicitations from various local, national and international charities. Many of them tout the same benefits to giving that are familiar to most of us. Although most of these strategies are already well known, the tax benefits to giving strategically are always worth a brief mention.
Strategy for charitable giving is complicated this year by the uncertainty surrounding the fiscal cliff negotiations currently dominating the economic headlines, because the amounts you can deduct could be reduced. Th ere is no way now to know for sure who will be affected and by how much, but it is likely that some of the ways you can save this year may not be available in the future.
Once you have developed a giving strategy – determining what you hope to achieve through your charitable giving – it is prudent to spend a bit of time planning the actual mechanics of the gift s to take advantage of potential tax savings. That way, you can maximize the value of the charitable deduction you can take if you itemize deductions on your annual 1040.
If you hold appreciated securities in your portfolio, you can get more bang for your buck by transferring these assets directly to the charity. The greater the gain you have on these securities, the more it will save you on taxes. Utilizing this method of giving will not only give you a charitable deduction in the amount of the fair market value of the security on the date of the gift, but since you haven’t actually sold the security, you avoid realizing and paying tax on the appreciation. The charity will not have to pay any tax on the gain either.
Another thing to consider when planning charitable giving is timing of the gift with respect to your tax situation for any given year. In years that your income is expected to be substantially higher, it often makes sense to bunch charitable deductions into that year; the deduction might offset income that would put you into a higher tax bracket. It may make even more sense for you this year, because a provision to cap at 28 percent the value of all itemized deductions, including the deduction for charitable donations, may be one outcome of “Fiscal cliff ” negotiations.
Moreover, without Congressional action, 2013 will see the reinstatement of the gradual phase-out of itemized deductions. Given these two possible outcomes, charitable donations may be more valuable for reducing taxes this year than next, especially for high-income taxpayers, who might want to take advantage of the maximum allowable tax deduction for charitable donations in 2012 (50 % of Adjusted Gross Income).
Taxpayers who want to maximize giving in 2012 to realize what could potentially be the highest deduction value for the charitable dollars, yet still support individual charitable organizations in future years can avail themselves of institutions such as the Douglas County Community Foundation. Such institutions provide a vehicle that allows donors to take an immediate tax deduction, while making recommendations for distributing the funds in later months or years to qualified 501(c) (3) organizations at whatever times the donor wishes. Organizations like the Community Foundation have 501(c) (3) status themselves, and can accept gifts of appreciated securities in addition to cash donations and other types of assets.