Year-End Gift Ideas Worth Considering

Tax law changes over the years have made it harder for taxpayers to accomplish much with year-end tax planning. Important deductions have been curtailed or eliminated and sizable standard deductions have caused many Americans to lose the ability to “itemize” their deductions. For people who do itemize, there are positive steps they can take right now, before the end of the year, to reduce taxes. Charitable contributions can be an important part of such a strategy.

Every dollar you give before January 1, 2010, will be deductible up to 50% of your adjusted gross income. Any excess deductions can be carried over and deducted in future years. A $1,000 contribution saves $350 for a person in the 35% tax bracket, $250 for someone in the 25% bracket. Tax savings are not the reason people give to worthwhile organizations, of course, but they do enable them to do more than they might have thought possible.

Gifts That Increase Income. It’s December 2009 and John (who is in the 35% tax bracket) is looking for additional tax deductions. John has some stocks and bonds he could use for a charitable contribution but doesn’t feel he can afford to give up any income right now. One solution is to transfer his securities to a trust that will pay him a specified income for life, with the property benefiting our programs after his death. John receives a charitable deduction on next April’s tax return for a large portion of what he puts into the trust. And the trust is arranged so that his income is actually higher than before his gift.

Marketable Securities. If possible, contributors should make their gifts with stocks, bonds and mutual funds in which they have a large paper profit (long-term capital gain). The profit escapes tax, and the charitable deduction will be the investment’s full fair market value, if held more than one year. Note: Gifts of securities may be deducted up to 30% of your adjusted gross income, with a five-year carryover for excess deductions. Hasn’t the downturn in the stock market impaired this gift opportunity? If you do own stock that has gone down in value, you might sell the stock and contribute the proceeds. You’ll receive a gift deduction plus a capital loss deduction. But many “buy-and-hold” investors still own stock with significant appreciation. Other assets that have gone up in value may make good gifts, including collectibles, stock in closely held corporations and real estate.

Remember that the date of delivery of gifts to qualified organizations is the test of whether a gift will be deductible for 2010. A check will be considered delivered, however, on the date you mail it – even as late as December 31, 2009. The same rule applies when you mail securities in the proper form. Special charitable giving opportunities also exist if you own a life insurance policy that is no longer needed for the security of your family, or if you are interested in a plan for distributing your estate with minimum shrinkage from death taxes and other costs.

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