Giving in a Way That Maximizes Your Income Tax Savings

Posted on December 29, 2015


Depending on What You Give, Income Tax Savings Could be Substantial

income tax savingsIt’s the end of the year and holiday parties and presents have probably been dominating your conversations and to-do lists for the last few weeks. Now it’s time to take steps to maximize your income tax savings. When it comes to charitable giving, it’s not too late to implement a strategy or two that will make a big different on your tax return in the spring.

Charitable giving is an important part of wealth management and your accountant can give you guidance on some significant ways to impact your income tax savings with a few smart strategies. Ask your accountant about ways to save on your tax bill with this charitable giving plan:

Donate appreciated securities. You can make a donation to a charitable organization, but don’t limit your gifts to checks. Give appreciated securities directly to the organization, which is a common practice and, as you’ll see below, a great way to save on your tax bill.

Avoid capital gains taxes. You can donate appreciated securities and avoid paying capital gains taxes, just as if you had sold the securities and then donated the profit. For instance, if you had a stock that you purchased for $30,000 that has appreciated $20,000 to be worth $50,000, you have a choice of either donating the stock or donating the proceeds from the sale of the stock.

Your accountant can walk you through the specific numbers, but the difference in whether you give the stock or give the proceeds from the stock is significant. You will pay capital gains tax, plus Medicare surtax if you give the proceeds, which makes a major impact on your gift. In the example above, the taxes would cost you $7,140. As the proceeds go up, the taxes go up.

Maximize your itemized deduction. In addition, when you complete your tax return, you can deduct the amount of the gift, not the original amount you paid for the investment. Making a donation this way is a great strategy for income tax savings, particularly if you have an investment that has made a lot of money. Just be sure that you itemize on your tax return, or you will get no benefit from your charitable giving.

Choose the right appreciated securities to give and the right charity. In order to make this plan work, you need to identify the right appreciated securities. This means you need an investment that you have held for more than a year, and it should be your most profitable of those investments that you have had long-term.

It’s also important to verify that the charity you choose has non-profit status, and you might want to check up on their Charity Navigator rating, or another organization that evaluates charities.

Bert Doerhoff, CPA, works with clients to identify ways to maximize their income tax savings with charitable giving. The right giving strategy not only offers savings on your tax return, but fulfills your wishes in giving to a charity that you care about. Give us a call at AccuBiz to set up a time to talk about your charitable giving plans.

Posted in: IRS