End of Year Giving … Taxes and TipsAs you’re thinking about year-end charitable giving and your contribution plans for 2018, don’t forget these simple reminders. Thoughtful planning helps stretch your charitable dollars, and maximize your tax benefits.

• Most gifts to charity are tax-deductible, and result in federal and state tax savings.Charitable contributions make a remarkable impact on our local communities and our nation, and on the lives of individuals. Most people have a deep desire to give. But it’s good to remember that giving can reduce a donor’s tax burden.

With only a few exceptions, anyone can reduce the amount of tax liability owed by making gifts to charity. For example, suppose that a person is in the 28% tax bracket and earns $100,000 in adjusted gross income from his or her job or trade. That individual pays 28% in tax (or $28,000 total) on his or her income. But if that individual gives $10,000 to charity, he or she saves $2,800. It’s as if the taxing authorities are making a reimbursement for the gift. Of course, only people who itemize their deductions can claim charitable contributions.

• But remember: charitable gifts must be made to a qualified charity.To qualify for a deduction, a gift must be made to a legally qualified charitable organization, and the donor must not receive anything of value in exchange for a gift. So, for example, a donor making a $250 contribution to a dinner gala might be able to deduct $200 as a contribution, but might forego the $50 value of the dinner. A charity can provide guidance on this.

Donors wishing to find out whether an organization is a qualified charity can search the Internal Revenue Service’s database of qualified charitable organizations:

https://www.irs.gov/charities-non-profits/organizations-eligible-to-receive-tax-deductible-charitable-contributions

Remember that gifts to individuals, even if charitable in intent, do not qualify as charitable deductions.

• Gifts of stock can create even greater tax savings. Gifts of cash help reduce a person’s taxable income, but gifts of stock can produce even greater savings. Take the example of the person in the 28% tax bracket making a $10,000 gift. Suppose this individual had bought 50 shares of the ABC Corporation a number of years ago at $20 per share (or $1,000 total). Let’s say that today the shares are worth $200 each (or $10,000 total). If the donor gives the 50 ABC Corporation shares worth $10,000 to charity, he or she receives a charitable tax deduction of $2,800. But there’s even more. If the donor had sold the stock instead of donating it, he or she would incur $9,000 in capital gains income, and would probably pay 15% in capital gains tax (or $1,350) as a result. By donating the stock, the donor not only qualifies for a $2,800 charitable deduction, but also saves the $1,350 he or she would otherwise have to pay in capital gains tax!

One important tip: to qualify for a charitable tax deduction, gifts of stock must be transferred intact to a charity. Selling the stock first voids the capital gains savings.

• IRA distributions can make efficient charitable gifts.

In most cases, donors with individual retirement accounts must begin making withdrawals according to a prescribed schedule by age 70 ½. These withdrawals are subject to income tax.

But the U.S. tax laws now permit donors to make charitable withdrawals from their IRAs of up to $100,000 per year. If the donor transfers the IRA proceeds directly to a charity, the donor is relieved of any tax liability on the withdrawal.

• Gifts that establish charitable annuities and trusts can provide tax savings and income.Another creative way to obtain tax savings and generate personal income is by establishing a life income gift such as a gift annuity or charitable remainder trust. In addition to a tax deduction, donors usually receive income for life (or for the life of the donor and another beneficiary, such as a spouse) and a large portion of that income is tax-free.

In these cases, the tax deduction for the life income gift will be less than the deduction for a gift of outright cash because the donor is receiving an ongoing income stream. The amount of the deduction is based primarily on the age of the donor. In general, older donors are entitled to larger tax deductions.

Donors can create life income gifts at the end of the year with appreciated securities. As is usually the case, donors receive both a tax deduction for the current market value of the securities, and save on capital gains taxes. But the capital gains tax savings work differently here. Donors avoid capital gain tax on the portion of the gain attributable to the gift portion of the annuity. The tax on the balance of the capital gain is reported pro rata over the annuitant’s life expectancy, delaying payment of the tax.

Gifts of appreciated securities to a charitable remainder trust also reduce capital gains taxes. A charitable remainder trust can sell the assets and not generate any current capital gains liability to the donor or the trust. The capital gain taxes are only reportable to the extent the donor receives income attributable to the capital gains realized inside the trust.

• Proposed tax reform legislation might make some gifts more economical in 2017 than 2018.The U.S. House of Representatives and U.S. Senate are considering tax reform proposals that, among other things, raise the standard deduction and reduce both the number of tax brackets and the income thresholds for each bracket. If these proposals become law, more Americans will be able to file a “short form,” which will probably not allow deductions for charitable gifts. As tax brackets and thresholds are reduced, the dollar value of charitable gift deductions also declines. For example, the donor in the 28% tax bracket mentioned above might now be in the 25% bracket, meaning that his or her charitable deductions are “worth” $2,500 instead of $2,800. Donors who want to make gifts to charities in the next year or two might consider making them before December 31, 2017 in order to maximize the tax impact of the gifts.

• The cause matters more than the tax deductions. Thoughtful donors should think about the tax implications of their charitable contributions. But tax savings are not the reasons for making charitable gifts. Donors who want to make life better for others know that giving puts money to work on behalf of their neighbors, communities, and nation. This good work matters deeply, and is one of America’s greatest traditions.

Genesee Community College Foundation