Many individuals are unaware of the substantial benefits available for gifts made at year end.

Tax Benefits

Let's look at some of these advantages.

• Giving Appreciated Property

  If you have appreciated property that you plan to sell in the future, you might consider giving the property and avoiding the capital gains tax that would be payable on the sale of the property.

• Sell Securities That Have Decreased in Value

  If you own securities worth less now than what you paid for them, you should sell the securities and give the proceeds. This will allow you to take a capital loss on your income tax return, which you would forfeit if you gave the securities.

  And you still receive an income tax charitable deduction for the full value of your gift.

• Next Year's Tax Bracket Will be Lower

  If you are in a higher tax bracket this year than next, because you are expecting a reduction in income next year, there are two additional strategies to consider.

• Prepay Contributions

  You may wish to prepay contributions planned for next year, to take advantage of a greater tax savings. Or you may simply wish to increase your giving for this year.

  If you have made pledges that are payable over several years, you may wish to fully pay those pledges this year.

• Creating a Tax Deduction Through an Income Trust

  You can receive an income tax charitable deduction this year for gifts that you will make in future years. This can be accomplished through a specially designed trust.

  You place assets in a trust designed to pay income to Fred Jordan Missions. You determine the amount of income you wish for the ministry to receive, and the number of years you wish for them to receive it. At the end of the trust period, the principal of the trust is returned to you.

  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 to Fred Jordan Missions.

  Example: If you placed assets into a charitable trust designed to pay income of $10,000 a year to Fred Jordan Missions for the next five years, you could take an income tax charitable deduction of approximately $40,000 this year. And at the end of five years, the assets will be returned to you.

  However, the trust must be properly designed so that future payments made to Fred Jordan Missions will not be taxable to you.

• Guaranteeing Future Gifts Through a Specially Designed Gift Agreement

  Another way to create a tax deduction this year for future gifts, is to guarantee that gift by transferring the property to Fred Jordan Missions, retaining the benefit of the property for your lifetime or for a period of years.

  If you guarantee today that Fred Jordan Missions will receive property at some time in the future, you will receive an income tax charitable deduction this year.

  Your agreement may be funded with:

  • Cash,
  • A personal residence or farm which you continue to occupy,
  • Stocks, bonds, mutual funds, or
  • Real estate.

  It may be possible to increase your income. If the property you transfer is either highly appreciated or produces a very low income, the transfer can be to a trust. The trustee can then sell the property, avoiding capital gains tax, and invest the proceeds to provide a higher income. This can result in a considerable benefit to you.

Tax Rules

There are basic tax rules to use in planning your contributions.

• 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, also with a five year carryover for any excess.

• When you gift long-term appreciated property to ministry, there is no capital gains tax payable at the time of the transfer, or when the property is sold by the ministry.

Strategic Examples

Let's look at some strategies you can use in making your year end gifts.

• Giving Appreciated Property

  You own securities valued at $5,000, for which you originally paid $2,000. If you sell the securities, you will have a $3,000 capital gain, resulting in a tax of $660 assuming a 22% combined federal and state tax bracket.

  If instead of selling the securities, you use them to fulfill your giving desires, you not only avoid the $660 capital gains tax, but you receive a charitable deduction for the full $5,000. In a 35% combined federal and state income tax bracket, this will save you an additional $1,750 in taxes.

• Creating a Tax Deduction Through an Income Trust

  If you placed assets into a charitable trust designed to pay income of $10,000 a year to Fred Jordan Missions for the next five years, you could take an income tax charitable deduction of approximately $40,000 this year. And at the end of five years, the assets will be returned to you.

  However, the trust must be properly designed so that future payments made to Fred Jordan Missions will not be taxable to you.

• Guaranteeing Future Gifts Through a Specially Designed Gift Agreement

  You purchased securities for $40,000, and which have appreciated to a current value of $100,000. Your securities are currently paying a 3% dividend. However, if you sold the securities to invest for a higher return, you would pay a capital gains tax of $13,200 (in an assumed 22% combined federal and state capital gains tax bracket).

  If instead of selling the securities, you transfer them to a special charitable trust designed to pay you 8% income each year, you will increase your income by $5,000 a year. 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.

 

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This information is of a general nature only, and should not be interpreted as legal advice. Lifestyle Giving, Inc., 2006- 2010.