(1) Section “529” – College Educational Savings Account
Set one up for your children or grandchildren. The earnings on the investments are tax free and the amounts withdrawn by you or the beneficiaries are tax free to the extent the funds are used to pay for college expenses. The contributions are not deductible on the federal return but are on the NY return. You can contribute any amount but the deduction on your NY return is limited to $5,000. Your broker can set up an account or accounts for you.
(2) Donate The IRA Minimum Distribution To Charity
When you reach age 70 2, you are required to take a minimum distribution (fair value at December 31 divided by your life expectancy in IRS tables). from your IRA (N/A to a Roth). Instead of taking it in cash, donate the minimum distribution to charity. This way you do not have to pay taxes on the distribution, but since the distribution was given to charity and was tax free, you cannot take a charitable contribution for the amount donated. If you want to do that, contact your IRA administrator and give him or her the name and address of the charity you want to donate it to.
(3) Donation Of Appreciated Property
The advantage of donating, (rather than sell them and donating the cash) stocks, bonds, mutual funds or other property that has appreciated in value is you get a charitable contribution deduction with no cash outlay for the fair value at the date of the gift. If you sell the securities or other appreciated property and donate the cash, you have to pay federal and state income tax on the gain, so the value of your contribution is diminished. To make a donation of appreciated securities do the following:
1. Contact the charity and ask them if they accept donations of property. If so, get the name and address of the person to whom it should be sent.
2. For securities (stocks, bonds, mutual funds):
a. contact your broker in writing and tell him or her you want to make a donation of appreciated securities and give the following information: name and address of charity, contact person at the charity, name of security or securities and number of shares or bonds you want to donate. You may want to consult with your broker on which are the best securities to donate to maximize your contribution.
b. ask the broker to transmit the securities electronically and send a letter to the charity indicating that securities are being donated on your behalf, your social security number, name and address, name of the security or securities, number of shares of each one, and their fair value on the date of the gift.
The charity should send you an acknowledgment letter indicating the type of property donated, its fair value on the date of the gift, and the date received. If the value of the property exceeds $250, federal tax regulations require the charity to state in it acknowledgment letter: “no cash, services, or other property was received in exchange for the donation“. Make sure the charity indicates this or the IRS will disallow the donation if your return is audited. A recent U.S. Tax Court decision upheld the authority of the IRS to disallow the contribution if this statement is missing.
If the property donated has a value of $5,000 or more an independent appraisal is required with a copy given to you and the charity. This does not apply to securities because they have an independent established value.
If you would like additional information or have any questions on these, please connect with me on TaxConnections at: Harold Goedde