- Before giving money away, research your intended charities carefully on Charity Navigator–a free site that can help you give more intelligently.
- Charitable gifts are tax-deductible provided you are a taxpayer who itemizes deductions. However, there is a limit imposed on the amount you can deduct, and other adjustments may be required.
- Tax-free charitable distributions of up to $100,000 directly from your IRA are not available for 2014.
- When it comes to charitable giving, make sure you consult your accountant, estate tax planner and charitable giving specialist and coordinate all activities through your wealth advisor.
The holiday season is in full swing and many of our favorite charities will be asking us for money. There are many good reasons to give to charity and receiving a charitable deduction for your gift is an added bonus. The following information is intended to help you maximize your generous gifts.
Before giving money away, research your charities carefully on Charity Navigator. This site provides detailed and objective information and ratings for 7,000 charities. It’s free and a great resource for helping you give intelligently.
What is the charitable deduction?
Charitable gifts are tax-deductible provided that you are a taxpayer who itemizes your deductions. However, there is a limit imposed on the amount you can deduct, and other adjustments may be required.
The charitable deduction also allows you to deduct the value of property you give to charity from your estate and may reduce any federal gift and estate tax that may be owed. Charitable gifting allows you to satisfy your personal philanthropic desires and fulfill your estate planning objectives. It is possible to transfer your entire estate to charity, tax free.
How do you use the charitable deduction?
For lifetime gifts, the charitable deduction is allowed for the year in which the gift is made for federal gift tax purposes. You don’t need to file an annual gift tax return if all gifts made for a given year fully qualify for the charitable deduction.
Charitable deduction: real world example
Ron is a small-business owner in the town where he was born and raised. He is a well-liked and respected member of the community. Ron feels he should give back to his community and donates money every year to support the town’s zoo, hospital, library, children’s center, church and other local charities.
During the years 2007 through 2011, Ron gave $500,000 in total to different charities. Each year, Ron filed a gift tax return, but paid no gift tax because the gift tax charitable deduction offset his taxable gifts. Each year, Ron also filed an income tax return, thus reducing his taxable income by the amount of income tax charitable deduction allowed. Say Ron dies in 2014 and that his will provides for a charitable bequest in the amount of $100,000, with the residuary estate passing to his only nephew, James. Ron’s executor reduces Ron’s taxable estate by $100,000 (which is allowed by the estate tax charitable deduction), thus reducing the estate tax owed. Ron’s executor pays the estate tax owed and then distributes the residuary estate to James.
Charitable IRA rollover gifts not available for 2014 (as of 12/10/14)
A number of important legislative measures including The Pension Protection Act of 2006, the Emergency Economic Stabilization Act of 2008, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and the American Taxpayer Relief Act of 2012 permitted donors over the age of 70½ to make tax-free charitable distributions of up to $100,000 directly from their IRAs. As of this writing, Congress has not extended this provision for charitable IRA rollover gifts beyond 2013.
Charitable planning is a cornerstone of the wealth management process. It can involve your accountant, estate tax planner and charitable giving specialists all coordinated by your wealth advisor. If you are thinking about your year-end charitable giving, now is the time to talk with us.
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