Year-End Tax Planning Considerations

By Jeffrey A. Ernico, Esq.

Year-End Tax Planning Considerations

As we begin wrapping up the year, it is time to think about year-end financial considerations. For many of us, charitable giving is one of them. When thinking about how much your contribution should be for this year, there are number of issues that sometimes come into play. In general the amount that you are able to make in charitable contributions is a fraction of your adjusted gross income on your income tax return. That fraction varies if you are making a gift to a public charity or a private foundation. Most people are making them to public charities such as their church, school, community foundation, YMCA, or the like. Consequently in those cases you may gift up to 50% of your adjusted gross income and claim a tax deduction for that gift.

Sometimes people are able to make gifts of either cash or an investment of some kind. For instance, if you have stock with a substantial capital gain and would rather not sell the stock and incur the taxable gain, you may want to consider using that stock to make a substantial charitable gift and get the full benefit and value of the asset as a tax deduction. Another thing that some people should consider is the possibility of making a substantial gift in the current year as a result of a substantial gain that may have come out of the sale of a business interest or the like, into a donor advised fund with a local community foundation which will be able to pay out to your favorite charities portions of that gift over several years to come. The tax deduction may be extremely valuable to you in a year when you sold the business interest, and you will want to continue some normal giving patterns that you have developed over years out of the funds that you set up in the donor advised fund at the local foundation.

The beauty of most charitable gifts are that you get the full benefit of the face value of the asset you are giving, even though you may be taxed substantially if you were to sell or withdraw that asset from an account, such as, your IRA. In this regard, it is noteworthy that you may make gifts of up to $100,000 a year to a charity out of your IRA and never pay any income taxes on the gain within your IRA for that particular withdrawal. A classic withdrawal from an IRA is going to be taxed at ordinary income tax rates, but this gift will be tax-free with 100% of the value going to and for the benefit of the charity of your choice.


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