Year End Tax Planning Starts With A Charitable Donation Assessment

John Dundon

How do you plan to give back next year?

The more money we tend to have, the harder it tends to be to share our resources with others. This is true up to the point we start to appreciate the significance of giving back. For many this tipping point comes far too late in life if at all. If you charitably donate or are considering being charitable, how much are you donating? How are you making those donations? Money? In kind? Time? How do you decide what is appropriate?

Have you incorporated your compassion to be charitable with year end tax planning? It really is incredible how ordinary people are compounding their ability to generously donate and simultaneously minimize their current income tax burden by simply being intentional in how they incorporate charitable donations as part of a year end tax planning strategy.

Why am I writing about this? Recovering from a hairline fractured tibia and bruised ego earned trying to keep up with my 14 year old son offered me the opportunity this fall to invest time usually spent exercising instead working on St. Peter’s Stewardship Committee. It was quite an experience.

To add color my MOM came along for the ride. WOW!

Thinking about one’s life in terms of stewardship and conducting one’s self as an astute steward is fascinating. Come to learn that true stewardship begins by being at peace with one’s present possessions, which candidly requires maturity; particularly in our fast paced instant gratification world where struggling to keep up with our friends or relatives is a priority.

If you are ever fortunate enough to find yourself at peace with what you physically ‘have’ the next step is acknowledging that all of it, everything you own, every ‘natural’ skill you possess, all your works, joys, actions, sufferings, challenges and accomplishments including every single breath taken has purpose.

Purpose requires faith that humanity & your present position in it has meaning beyond here and now. Meaning manifests itself in a shared desire to be part of something bigger than one’s self. Being connected!

Once there the concept of stewardship and being a steward should in theory take on a new meaning. It certainly did for me! Particularly as I identified Mom’s 2016 income tax savings calculations whilst she established her ‘giving’ legacy.

Through this experience I’ve grown to believe that people who charitably donate are motivated three ways:

  • To generally feel/do good
  • To establish a legacy
  • To minimize current income taxes

Charitably donating with intention captures the benefits of all three.

For example donating appreciated property rather than cash simultaneously accomplishes the building of a legacy while minimizing current income tax burden. Whether it brings happiness is for you to decide.

So what about Mom?

She wanted to make a donation to support her favorite charity’s most recent fundraising drive that happened to be near and dear to her heart. However, she feared running out of money (she’s not). After discussing it, she decided to contribute her low basis concentrated stock position in Exxon Mobile to the charity’s pooled income fund.

It was not nearly as complicated as expected.

Mom considered the following in evaluating the merits of donating an asset that had appreciated in value, She:

  • measured ALL costs surrounding the administrative burden and mechanics of liquidating the stock to generate cash for donation purposes..
  • understood the character of the appreciation on the property, be it long-term capital gain vs. short-term capital gain vs. ordinary income for income tax purposes.
  • liked that unrealized built-in-gain is typically not recognized as income when the property is donated, but remains deductible

For you tax geeks like me remember appreciated assets as in kind donations are not subject to the percentage limitations of monetary donations stipulated in IRC §170. And the asset can be donated to foreign as well as domestic charities.

I think Mom made a good decision because:

  • The capital gains tax implications of a monetary donation would have all sorts of other impacts on her income tax return.
  • The pooled income fund she invested in offered a 1.5% payout rate – which was comparable to other options
  • She receives an income tax deduction up-front in the tax year of the donation.

Enrolled with the United States Treasury Department to practice before the IRS, governed by rules stipulated in United States Treasury Circular 230. As a Federally Authorized Tax Practitioner and a tax appeals specialist my Enrolled Agent License #85353 is issued by the United States Treasury. With this license I work for U.S. taxpayers everywhere to resolve tax matters and de-escalate stress about taxes or tax disputes for individuals and corporations with federal and state issues.

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