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Tax Smart Giving

Smart Giving: Assets and Tax Advantages Think Beyond Cash Giving money by cash or check is one of the most common ways to donate to a charity. However, there are alternative assets to consider that may enable you to give a larger contribution to charity while enjoying a greater tax benefit for yourself.

These include:
Publicly traded appreciated securities you have owned for more than a year: • stocks • bonds • mutual fund shares • life insurance
Complex, non-publicly traded appreciated assets: • private or restricted company stock • shares of a privately owned business • real estate
Donating long-term appreciated assets is a smart charitable planning strategy, because you are generally entitled to the full fair market value (FMV) tax deduction at the time of your gift. Also, you may be able to eliminate capital gains taxes when you give these assets directly. Through these combined tax-saving opportunities, you may be able to give more to charity compared to selling the asset and donating the cash proceeds.

Tax Advantages

The federal government has established a variety of tax incentives to encourage charitable giving. These incentives may reduce your income tax, capital gains tax and/ or estate taxes. Income Tax Charitable donations made to a qualified charity are tax deductible and may reduce the amount of income tax due. In most cases, you’re entitled to a deduction amount equal to the fair market value of your contribution. Although charitable contributions are 100% deductible, there are limitations against your Adjusted Gross Income (AGI) to what you can deduct in a given year. Cash 50% of AGI Public charities Public charities 30% of AGI Private foundations Private foundations 30% of AGI 20% of AGI Appreciated Securities1 You can carry forward deductions exceeding these limits for up to five years, although each year you are required to use as much of your present-year deductions as you can. There may be special circumstances and limits when contributing both cash and appreciated assets that warrant consulting with your advisor or tax professional.

Estate Tax
An estate tax is charged on the net value of your estate before it is passed on to your heirs. Many people, however, are not affected due to a number of exclusions and exemptions. For example, charitable donations to a qualified charity can be used to reduce this tax. Unlike income tax deductions, there is no limit to how much can be deducted from your estate tax. Typically, donations that qualify for estate tax deductions happen at your death, according to the directions set in your will or other legal arrangement. You may also want to consider incorporating charitable giving into your financial plan during your lifetime, because a charitable gift while you are living removes the gifted assets (and any future appreciation related to those assets) from your estate.

Capital Gains Tax
Short-Term Assets: Short-term assets are those owned for one year or less. If you sell the asset first and donate the proceeds to charity, any gain on the sale will be taxed at the ordinary income tax rate. If you donate the asset, your income tax deduction will be limited to the lesser of FMV or your cost basis in the asset. However, the IRS will treat this like a cash contribution, and it will be deductible against AGI up to 50% for a public charity and 30% for a private foundation. Long-Term Assets: Long-term assets are those owned for more than one year. Long-term capital gains are taxed at lower rates. Depending on AGI and filing status, most taxpayers are subject to a 15% capital gains tax rate, while some top-rate taxpayers now face up to a 20% rate as well as a 3.8% Medicare surtax on net investment income. When donating long-term appreciated securities, rather than selling the securities first and then donating the after-tax proceeds, you will generally be able to eliminate taxes on the capital gains, so the charities to which you give receive a larger donation.