Biblical Stewardship Services
To educate, motivate, and assist our supporters in Biblical Stewardship Planning2017 YEAR-END GIVING
How you can make the most of it
AN IDEAL TIME TO PLAN – Year-end is an ideal time to plan to maximize your gifts for this year, as well as establish a giving program for next year. We all know that giving takes more than desire. It also takes planning. Here are a few things you should consider:
- The type of gift you want to make
- The tax benefits available to you
- The needs of the organization you wish to support
- Your future income needs
WHY CONSIDER YEAR-END CHARITABLE GIFTS?
Seldom can you make a gift and have more money after making the gift than you had before. Therefore, saving taxes will not be your primary reason for giving. But you give as a part of your personal commitment and your desire to help those less fortunate.
Saving taxes is a consideration only after you have decided to make a gift. Then, as a responsible steward, you want to achieve maximum tax benefits. Because your gift will be deductible on your income tax return, the tax savings can result in an actual cost much less than the amount of your gift.
PLANNING THE TYPE OF GIFT
While cash is a common way to give, there are many other ways to give. Let’s look at a few options.
Option 1: Cash The most popular way to make a gift is with cash. The only planning required to take a deduction for the gift on this year’s taxes is that your gift must be postmarked or delivered before the end of the year.
Option 2: Giving Appreciated Property If you have appreciated property (such as securities, bonds or real estate) that you plan to sell in the future, you might consider giving the property to a charity and avoiding the capital gains tax that would be payable on the sale of the property. There will be no tax payable on the capital gain and your income tax charitable deduction will be for the full fair market value of the property.
If you gift securities, timing is important. If the securities are sent directly to the charity or delivered to the charity’s broker, the valuation and your deduction will be based on the date of the transfer. However, if you send the securities through your broker to be reissued in the name of the charity, then the transfer date is the date the securities are actually transferred on the books of the issuing corporation. Since that date is unpredictable, you will want to make sure that it is completed before year end, and on a day when the market is favorable.
Example: You own securities valued at $10,000, for which you originally paid $4,000. If you sell the securities, you will have a $6,000 capital gain, resulting in a tax of $1,320 assuming a 22% combined federal and state tax bracket.
If instead of selling the securities, you use them to fulfill your giving goals, you not only avoid the $1,320 capital gains tax, but you receive a charitable deduction for the full $10,000. In a 35% combined federal and state income tax bracket, this will save you an additional $3,500 in taxes.
Option 3: Gifts of Tangible Personal Property When you make a gift of tangible personal property related to the tax-exempt function of a charitable organization, if you have owned the property for more than one year, you may deduct the fair market value of the property without paying capital gains tax on the appreciation. If the property is not put to a related use by the ministry, the deduction is limited to cost basis.
Option 4: Gifts from Individual Retirement Accounts – Congress made permanent the law that allows people age 70½ or older who own an IRA to make cash gifts directly from their IRA to charity. For many people, this is the best tax-wise way to give. An IRA rollover gift will not be included in your taxable income and will qualify for your required minimum distribution.
Gifts from individual retirement accounts can be made directly to a charitable organization without creating a taxable event. Timing is very important. You want to make certain that there is sufficient time for your account custodian to process your request, allowing you time to complete your gift.
Option 5: Gifts of Commodities When you transfer legal ownership of commodities before they are sold, you will not realize taxable income from their sale, and you will still be able to deduct the entire cost of their production and minimize your taxes. Consult your tax advisor to determine if a commodities donation is appropriate for your tax circumstances. Your donation of grain or other commodity can be processed at the same place it is normally shipped.
The broker will sell the grain or other commodity and send the proceeds from your gift to CAM Foundation. The funds will be used for the CAM programs you specify and will help to provide food, clothing, medicines, Bibles, and other aid for people around the world. If you are interested in donating commodities, contact CAM Foundation at 330.893.4915
Option 7: Gifts from Businesses If you own a business, you can receive a charitable deduction for contributions up to 10% of the corporation’s taxable income. Your gifts can be of cash, inventory, equipment, or crops. Many businesses find that contributions other than cash are more convenient to make. If your business authorizes the gift this year, the gift can be completed next year, prior to the filing of the business tax return.
If you are employed by a corporation, you will want to check with your employer concerning corporate giving. Many businesses match gifts made by their employees to approved or qualified charities. If your business is a partnership or LLC, a gift of business interest may provide significant tax benefits.
As you consider the options above, there are a few basic tax rules to remember.
- If your gift is of cash or of non-appreciated property, you are allowed a charitable deduction up to 50% of your adjusted gross income. Any excess can be carried over for up to five additional years.
- If your gift is of long-term appreciated property, you are allowed a charitable deduction up to 30% of your adjusted gross income, along with a five-year carryover for any excess.
- When you gift long-term appreciated property to charity, there is no capital gains tax payable at the time of the transfer, or when the property is later sold.
Click here for additional year-end tools and tips
If you are looking for an end-of-year deduction but want more time to make thoughtful giving decisions, consider a donor advised fund (DAF). Our organization can use your tax-deductible gift to establish a DAF in your name. This will enable you to distribute your gift to your church, to Christian Aid Ministries, or to other charities you may wish to support.
Will your next year’s tax bracket be lower?
If you are expecting a reduction in your income next year, and are in a higher tax bracket now, you might want to consider making a current gift that will generate future benefits. This can be done through a specially designed gift agreement that will benefit you during your lifetime.
If you guarantee today that a charity will receive property at some time in the future, you will receive an income tax charitable deduction this year.
This is how it works. You transfer your property to a charity, retaining the benefit from the property for your lifetime or for a period of years.
Your gift can be in the form of:
- Cash
- A personal residence or farm which you continue to occupy
- Stocks, bonds, mutual funds
- Real estate
It may even be possible to increase your income. If the property you transfer is highly appreciated or produces a very low income, the transfer can be to a trust. The trust can sell the property, without payment of capital gains tax, and invest the proceeds in a higher income-producing investment. This can result in a considerable benefit to you.
Example: You purchased securities for $40,000, which have appreciated to a current value of $100,000. Your securities are currently paying a 3% dividend. However, if you sold the securities, you would pay a capital gains tax of $13,200 (in an assumed 22% combined federal and state capital gains tax bracket), leaving $86,800 of your $100,000 value to reinvest.
If instead of selling the securities, you transfer them to a special charitable trust designed to pay you 6% income each year, you will double your income. And you avoid the $13,200 tax on the appreciation. In addition, you receive a substantial income tax charitable deduction at the time of the transfer, based upon your current age.
Would you like to increase your current giving, but still allow your family to benefit in the future?
This can be accomplished through a specially designed trust. This is how it works. You place assets in a trust designed to pay income to charity. You determine the amount of income you wish for the ministry to receive, and the number of years you wish for it to be paid. At the end of the trust period, the principal of the trust is returned to you or your family. If the trust is properly designed, you can take an income tax charitable deduction this year for the current value of your future income gifts.
Example: If you placed assets into a trust designed to pay income of $10,000 a year for the next five years to a charity, you could take an income tax charitable deduction of approximately $47,000 this year. And at the end of five years, the assets will be returned to you.
The trust must be properly designed so that future income payments to charity will not be taxable to you.
IN CONCLUSION
We trust this information is of interest and value as you consider your year-end tax planning. It is our prayer that God will richly bless you as you continue developing your lifestyle of giving. Thank you for your prayers and your support.
Note: This information is of a general nature only, and should not be interpreted as legal advice. The illustrations in this memorandum were calculated using a 2.2% mid-term AFR rate. The rate in effect in the month of the gift or in either of the two months preceding will be used to calculate the charitable deduction available for a specific transfer.
Adapted from an article by Lifestyle Giving, Inc., © 2015
“Moreover it is required in stewards, that a man be found faithful.”
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