“Helping Charities While Reducing Taxes- Part II” - November 15, 2009

Last week, I discussed a strategy for making charitable gifts by using the beneficiary designation under your retirement account instead of a specific bequest under your will and thereby potentially saving hundreds or thousands of dollars in taxes owed by your heirs. Today, I’ll review the various ways to give to charities before the end of the year.

Cash. Cash gifts must be post-marked by December 31st in order to receive a tax deduction for this year. Deductions are limited to 50% of Adjusted Gross Income (AGI) with any excess carried forward for up to five years.
Personal items. Giving clothing and other personal items is a great way to help people in need and do a little pre-spring cleaning at the same time. You’ll need a detailed list of the items along with the fair market value for tax purposes. Be sure to get a receipt of the gift from the charity.
Appreciated property. While the stock market is still approximately thirty percent below its 2007 high, we have seen a remarkable recovery of over sixty percent from this year’s March 9th low. This means that some of you own stocks that have substantial gains. By giving appreciated stock instead of cash, you effectively ‘give away’ the imbedded tax liability as well. If you want to continue to own the stock, use your cash to purchase an equal number of shares. The charity receives their money and you now own the stock with a new, higher cost basis. Gifting appreciated bonds, real estate or other personal assets can also be advantageous. The tax deduction for gifts of appreciated property held for more than one year is limited to 30% of AGI and the transaction must be completed before December 31st.
Retirement accounts. If you are age 70½ or older, you can transfer up to $100,000 of retirement plan assets directly from your retirement account to a qualified charity. While you do not receive a tax deduction for the gift because you already deducted your contributions to the plan, you avoid reporting any income. In the past, an additional advantage of this strategy was that the transfer counted towards your Required Minimum Distribution (RMD). However, for 2009, no RMD’s are required.
Donor Advised Fund. Sometimes people have the money available to make a gift and the desire to do it now in order to reap the tax benefits but have not decided which charities they want to benefit. An excellent solution is a Donor Advised Fund which allows you to give this year, receive a tax deduction this year, but designate the charities sometime in the future. Donor Advised Funds are often administered through the more than 650 Community Foundations across America. To get more information or to find a Community Foundation near you, go to www.cflocator.net. In Birmingham, contact The Community Foundation of Greater Birmingham at 205 327-3800.

At a time when official unemployment rate has eclipsed 10% and true unemployment exceeds 50 million Americans, it is more important than ever that those of us who do have jobs and excess funds, give to those charities that touch our hearts.