December 1, 2010 // Local

The joy of giving — year-end charitable giving strategies

By Elisa Smith

Sure, a warm, wonderful feeling often stirs in our hearts when we surprise a loved one with that Christmas gift that they so badly wanted. But, when they remember us in return with a caring gift, it can feel even better.

When you make a year-end gift to charity, both you and the charity can reap benefits. Your donation can pay off in the form of tax savings and sometimes even a stream of income for life.

Income tax deduction
In order to receive an income tax deduction for charitable gifts made, you must give to a recognized 501(c)(3) not-for-profit organization and you must be able to itemize deductions on your personal income tax return. According to the IRS, you also need to have qualified documentation of your gifts. For those gifts of $250 and over, you must have a receipt from the charitable organization. Furthermore, gifts under $250 require a canceled check, credit card statement or a receipt from the charity.

Estate tax savings
We often give money and gifts to our adult kids for lots of reasons. But we also do it for estate planning purposes — to make sure that our heirs pay as little estate and inheritance taxes as possible on the property that they inherit. Gifts to charity reduce estate and inheritance taxes as well.

As you recall, in 2010 the federal estate tax was repealed. However, it is scheduled to come back in 2011 with a $1 million exemption and a tax rate as high as 55 percent. You can lower that future tax bill by making annual exclusion gifts to individuals of as much as $13,000 each and unlimited gifts to charity.

Gifts of securities
Instead of donating cash to charity, you could contribute appreciated securities that you own. Gifts of stocks, bonds, and mutual funds that have increased in value during the time you have owned them could result in substantial tax savings.

For any appreciated securities held for more than one year, you can give the securities to charity and take a charitable income tax deduction for the value of the securities on the date of the gift. The deduction is limited to 30 percent your adjusted gross income, but any excess charitable deductions can be carried forward for five years.

In addition to regular tax savings, you also can save capital gains tax by contributing the securities directly to the charity. If you were instead to sell the securities first, you would incur a capital gains tax even though the proceeds would be given to charity.

What about securities that have decreased in value? You will want to consider selling these securities and then gifting the cash proceeds to charity. Selling these securities creates a capital loss that you may be able to offset against capital gains or even ordinary income up to $3,000.

You would also receive a charitable income tax deduction for the amount of the cash proceeds that you contribute.

Charitable gift annuity
Among the oldest, simplest and most popular methods of making a deferred charitable gift is the charitable gift annuity.

A charitable gift annuity is a contract between you (the donor) and a charity. The charity, in return for an irrevocable transfer of cash, marketable securities or sometimes real estate, agrees to pay a fixed amount of money to you and/or another beneficiary for your lifetime(s). The amount of the annuity payout is based on the age of the annuitant(s) at the time of the gift and the value of the gift, measured by one or two lives.

When the gift annuity is created, part of the value represents a charitable gift and part is the amount exchanged for the annuity contract. The donor can claim a current income tax charitable deduction for the portion of the transfer that represents the charitable gift element.

Many gift annuity donors are retired, want to increase their cash flow, have the security of a steady stream of guaranteed payments, and want to save taxes. A charitable gift annuity is easy to set up and does not require an attorney to handle. Often the charitable organization’s staff can walk you through the transaction.

Memorial or Tribute Endowment
Through the Catholic Community Foundation of Northeast Indiana, you can create an endowment fund for your beloved parish, school or other diocesan agency in the name of a loved one as a memorial or tribute gift. You can also endow a scholarship fund for your Catholic elementary school or high school.

A minimum $5,000 initial contribution can be funded with outright gifts of cash, securities or real estate. And your donation is tax deductible.

Your endowment invests principal perpetually and only pays out income to the charitable beneficiary. Assets held in the Catholic Community Foundation are invested according to guidelines attuned with Catholic values.

A contribution to an endowment fund with the Catholic Community Foundation of Northeast Indiana in memory or honor of a loved one can be the perfect holiday remembrance.

Note: This information is for educational purposes only and is not intended for tax advice. Please consult your professional advisor.

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