Lexington, KY - It's that time of the year again. Your mailbox is filling up with pleas. Your CPA is reminding you that a little generosity can go a long way toward lowering your 2009 taxes.
Then, get busy. It's not too late to make a tax-wise charitable gift. Here are some ways to do it:
Gifts of cash. Charities love cash. For you, it couldn't be easier. Gifts of cash provide you with the maximum charitable income tax deduction available. You can deduct a gift of cash up to 50% of your adjusted gross income (AGI) in the year you make the gift and carry forward any excess deduction for five additional years.
Your mailed donation must be postmarked on or before December 31 to be counted for your 2009 taxes. There is one caveat: if you use a non-USPS carrier, the mailbox rule doesn't apply. The carrier acts as your agent, so the actual delivery date matters in that situation - not the date you drop it in the Fed Ex box. And if you decide to give actual cash rather than write a check, please don't mail it. Hand deliver the cash to the charity, and ask for a receipt.
Gifts of securities. There is appreciated stock out there again, and it makes a great charitable gift. With the market ups and downs over the last year, your portfolio may need rebalancing. Instead of selling appreciated securities, donate them. The charity pays no capital gains tax, so the full value is used.
If you happen to still own actual stock certificates, you can give those, but you will generally need to also execute a stock power or other signature guarantee. For gifts of securities in street name, a charity usually will have a brokerage account for you to instruct your broker to deliver to via DTC wire transfer or journal entry.
Always check with the charity before you give stock to make sure it has gift procedures in place and to ensure that it will be expecting the specific securities. Timing can be tricky. Be aware that certain mutual fund companies can take days or even weeks to complete a transaction, so get these started well before the end of the year. Common stock gets transferred much more quickly - usually within 48 hours.
Don't forget that simply giving instructions to transfer to your broker does not qualify as a transfer. Your broker is your agent, not the charity's. It is only when the securities hit the charity's account that the gift is complete for tax purposes.
A word about restricted securities or closely held stock: these can be excellent charitable gifts and can be very useful for business or family purposes in succession planning or concentrating positions, but these are not ideal year-end gifts unless you get started earlier than now. There are several pitfalls when dealing with these gifts, and you don't want to rush the transaction.
Make sure that the securities you wish to give are held long term and appreciated. If held short term, it still may make a good gift but the tax rules are different, so have your CPA run the numbers first. If you hold securities at a loss, have your broker liquidate the securities, then transfer the cash to the charity. That allows you to use the loss on your tax return and to claim the more favorable cash deduction. Gifts of long-term appreciated securities are generally deductible at FMV up to 30 percent of your AGI, again with a five-year carryover period for any excess deduction.
Gifts of real estate. If you own appreciated marketable real estate held long term, there still may be time to complete a gift to charity, but act fast. Simply signing over a deed to a charity and mailing it does not work. The charity will need to perform due diligence first and make sure your property is clean (no super fund sites please), can be sold at a fair price and in a reasonable period, and that you have clear title. You only have time for a simple transaction to qualify for a 2009 tax deduction, so only try this if accepting your real estate will be a slam dunk for the charity.
Gifts of personal property. Don't dump your junk on a charity (unless they ask for junk) but do consider a gift of marketable personal property. Jewels, furs, antiques, art and cars can be good gifts. As with any non-cash asset, check with the charity first. The IRS has related use rules that will control the amount of your deduction, so make sure and match your asset with the right charity to maximize your benefits.
More ideas. Got a paid-up life insurance policy that you no longer need? Gift this, and receive a deduction for the cash surrender value. All the above listed assets can be given outright but can also be used to fund life income gifts such as charitable gift annuities or charitable remainder trusts.
Before making any gift, talk with your financial, legal or tax advisor as each taxpayer's situation may vary as to deductibility of gifts. Make sure the charity is in good standing with the IRS. Inform the charity you wish to benefit, and always get a receipt. Happy giving!
Anne E. Nash, J.D., is the principal and owner of My Giving Advisor, LLC, and can be reached at (859) 806-6231.