Charitable Gifting Strategies - Outright GiftsCategory: Finance
Article added by: Cathy Pareto
It feels good to give. It feels even better when that giving helps your wallet too. As the end of the tax year approaches, it may be time to start thinking of ways to reduce your tax bill for next spring. Charitable gifting is one of the best ways to accomplish this.
Philanthropy through charitable contributions generates not only goodwill, but also has
significant income and estate tax benefits for donors. For wealthy individuals, this may translate into hundreds of thousands of dollars in estate and income tax savings.
There are many ways to give. And depending on the complexity of your estate, gifting strategies can range from a simple outright gift, to more elaborate planning through trusts and private foundations.
Perhaps the most effortless method of charitable gifting is through an outright gift. During one’s lifetime, writing a check, assigning a stock, or deeding property can accomplish this. At death, outright gifts can be made by will, life insurance, trust, or pension benefits. For purposes of this article, we will discuss only lifetime contributions.
What constitutes a charitable contribution?
A charitable contribution is a gratuitous, completed transfer of property to a charitable, religious, scientific, educational or other specified organization. Depending on what category the donee falls under, a charitable deduction may be taken for income, gift or estate tax purposes.
For tax purposes, not all gifts are created equal, so if you’re looking for a break from Uncle Sam, do your homework. Contributions are only deductible if made to a "qualified” charity. "Qualified” organizations must be operated exclusively for religious, charitable, scientific, literary or educational purposes; or to foster national amateur sports competition, or to prevent cruelty to children or animals.
Some examples of qualified charitable organizations:
• Churches or synagogues
• Most nonprofit organizations (such as Salvation Army, Red Cross, Goodwill Industries,
United Way)
• Nonprofit hospitals and medical research
• Most nonprofit educational organizations (such as Junior Achievement)
• Nonprofit volunteer fire departments
• Public parks and recreation facilities
• War veterans groups
Contributions that do not qualify for a deduction:
• Contributions to political groups
• Gifts to individuals
• "For profit” organizations
• Donations to civic leagues and social clubs
What constitutes a "completed transfer”?
In order to qualify as a completed gift, delivery of the property or cash must have taken place. The gifted property must be accepted by donee. And the donor must give up control and title of said gift.
Are there any dollar limits?
You can make gifts to qualified charities – regardless of amount -- without any Gift Tax. The
amount deductible, however, is dependent on the type of charity it is. (Described below)
Conversely, gifts to individuals have a $12,000 annual cap for 2007 and 2008 ($24,000 for a
married couple who elect to split the gift) per donee, free of gift tax but do not qualify for a
deduction.
The individuals can be your family members (for example, you can make such gifts to each of your children and each of their spouses and each of your grandchildren and each of their
spouses, to parents and grandparents, to uncles, nieces and nephews, etc.) or to friends, or to any other category of individual you select, regardless of their citizenship. And while they do not qualify for income tax deductions, they may be an effective way to move assets out of your estate, reducing your estate tax exposure.
How much is deductible?
The amount of your deduction to a qualified charity may be limited to 20%, 30%, or 50% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization you give it to.
Generally, contributions to public charities are more favorable than private foundations. Cash gifts to public charities are fully deductible up to 50% of a donor’s contribution. While cash gifts to nonpublic (private) charities, regardless of the type of property given away, is limited to the lesser of 30% of the taxpayers adjusted gross income or 50% of AGI minus amount of charitable contribution deductions allowed to a public charity.
Example: Bill Gates donates 40% of his AGI to a public charity like the United Way, his
contributions to a (30%) private charity are only deductible up to 10% of his AGI. Or, 40% AGI minus 30% equal 10% deductible contribution.
A gift of capital gain property to private foundations is the lesser of 20% or the unused portion of the 30% limitation.
What are my tax savings?
A donor in the 35% tax bracket contributes $10,000. The tax savings are:
Tax Savings = Amount of deductible gift X effective tax bracket
$3,500 = $10,000 X 35%
Therefore the net out of pocket expense for the gift was only $6,500!
By far, this is the simplest and quickest way to spread your wealth and accomplish your altruistic
goals. For individuals with larger estates or an array of assets, or for those who yearn for a
more systematic way of giving, there are alternatives.
Posted By: Cathy Pareto
Web: http://www.cathypareto.com
Contact: e-mail
| About the Author: |
| Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. Money management does not have to be an intimidating and mystifying process. Cathy's belief is that there is more
to investment management and financial planning than just the numbers. It takes commitment, clear communication and trust between the Advisor and the Client to plan out a strategy, and it requires the experience of a competent Advisor to execute that strategy.
For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally,
she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.
Educational Background
Cathy earned her BA in Finance and later her Executive MBA at Florida International University, graduating in the top 20% of her class and as a result she was inducted into the prestigious Beta Gamma Sigma Graduate Business Honors Society.
In the Media
Cathy Pareto’s articles have been published in periodicals and websites, including Women in Business,Investopedia.com, Miami Medicine, Florida Medical Business, AccountantsWorld.com, My Financial Advisor, Indexfunds.com, and Fundsinteracctive.com. Her media contributions include quotes in BusinessWeek, The Wall Street Journal, The Sun Sentinel, CNNfn, Latina Magazine, Hispanic Trends, AARP's
Segunda Edad, and many other financial publications. She has appeared on television and radio shows including CNBC’s “Power Lunch”, WLRN/NPR’s “Topical Currents", “Wealth & Wisdom”, Total Picture Radio, Landed Radio and more.
www.cathpareto.com
Professional Memberships
Greater Miami Estate Planning Council - Current Member of the Board of
Directors
United Way of Miami Dade Young Leaders - Current Member
NAPFA National Association of Personal Financial Advisors - Current South
East Region Board Member
Florida International University Executive MBA - Current Member of
Professional Advisory Board
Financial Planning Association - Current Member |
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