Giving the Right Asset
Careful planning and selection of assets is an important part of a “tax smart” gift. Whenever possible, donors will benefit greatly by giving “long term” appreciated investments or real estate. In this scenario, the donor receives a full market value charitable deduction and avoids payment of long-term capital gains tax.
Utilizing the Charitable IRA Rollover
Individual Retirement Account (IRA) owners who are 70.5 years of age or older by the end of 2011 were able to donate (up to $100k) directly from their IRA to a qualified charity and have it count toward their Required Minimum Distribution (RMD) for 2011. The qualified charitable distribution (QCD) avoids the realization of income from a typical IRA withdrawal. While it does not count towards an additional tax deduction, the avoidance of income was a great tax benefit. The IRA Rollover may be extended for 2012; we will let you know if it is!
Electing itemized or standard deductions
The astute donor will coordinate larger donations in tax years with higher expected levels of income. If you plan to sell a business, or are up for a bonus, stock option grant, or any other high income-recognition event, plan to offset your large tax liability with a larger-than-normal contribution to the nonprofits you support. For those households that do not realize a benefit from utilizing itemized deductions over standard deductions, consider how to “time” your gifts for the maximum tax benefit. A common strategy is to concentrate two or more years worth of giving into one tax year; you may also be able to pay two years of property taxes in the same year. You would then itemize your deductions for the current year, realizing that the standard deduction will most likely be used thereafter. This will allow you to realize an extra tax benefit, while keeping your actual donations the same.
