It is never too soon to start thinking of strategies to maximize the tax benefits of charitable giving. Federal tax laws and many state laws make it possible to reduce or eliminate taxes on gifts to charities like your parish, the Archdiocese or Catholic schools and ministries. 

Gifts of Cash

The most popular way to give to charity is still by cash or check. Gifts completed by December 31st will qualify for tax deductibility for the current tax year. Gifts of cash qualify for up to 60% of  your adjusted gross income (AGI). Larger gifts can result in deductions that can be used for up to five tax years, depending on your tax bracket and other factors.

Securities & Appreciated Assets

Additional tax savings are available for gifts of appreciated assets.  Gifts of stock, bonds, mutual funds, and certain other property that have increased in value can result in even greater tax savings.  If you have owned such investments for longer than one year you can generally give them and deduct their full current value, even if it far exceeds your original cost. 

Congress has provided that in addition to regular tax savings, you also do not have to pay capital gains tax when these assets are given to a qualifying charity.  This “extra” tax savings is another reason why some choose to make their gifts this way. 

Such gifts can eliminate tax on up to 30 percent of your adjusted gross income (AGI).  Assets held over one year are considered long-term. Many donors choose to give stocks or mutual funds that have appreciated the most, and therefore would otherwise result in the greatest capital gains tax if sold. If they still want to own the stock then they just repurchase those shares with the cash they would have donated to charity. Your basis is now the value as of the date you purchased the new shares, which eliminates your embedded taxable gains.

You can also give assets to charity that have decreased in value. You may receive a tax deduction of the incurred loss. The total amount of your loss and the charitable deduction may actually be more than the current value of the donated asset.

Donor Advised Fund

Did you have an event that resulted in higher taxable income this year?  Maybe it was the sale of a business, company stock, or other appreciated asset, or maybe your income is just higher this year. Your tax advisor may be suggesting you bunch several year’s worth of your charitable gifts into one year to benefit from itemizing this year. A donor advised fund through CFNEK can allow you to receive a charitable deduction for your giving this year, while providing you the flexibility to distribute your gifts to the charities you support over time. 

Gifts from Retirement Plans

Retirement plan assets are another practical source to make charitable gifts.  If you are over 70 1/2 and are required to take withdrawals from an IRA or other qualified retirement account, you may want to consider making a charitable gift using all or a portion of your mandatory withdrawal amount.  This way of giving may result in little or no tax impact when you report the amount withdrawn along with an offsetting charitable deduction. This is how to make a qualifying federal tax free charitable IRA rollover gift.

Life Insurance
If you own life insurance policies that you no longer need, the cash value of these policies may be another source from which to make gifts, and they may result in significant state and/or federal estate tax savings. You can also make the charity of your choice the beneficiary of all or a percentage of a life insurance policy.

Gifts that Provide Income

gift annuity or charitable remainder trust through the Catholic Foundation of Northeast Kansas may be a way to receive an immediate tax deduction, while providing a predictable stream of income during your life or other period of time you chose.

Act Today

Don’t wait until December 31st to plan your giving. Act now to make a cost-effective charitable gift to benefit the church before the end of the year.  Remember that only gifts made before December 31st can help reduce the amount of taxes you owe next April. 

Please consult your professional tax advisor for tax strategies for your personal situation.