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How To Make a Year-End Giving Plan
If you are considering donating a tangible asset, there are several things you should be aware of. First, anything worth more than $500 needs to be independently appraised.
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Business New Haven
11/22/1999
By: Susan Banfield
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One of the best-known strategies for saving on your taxes at the end of the year is to make year-end charitable donations. In order to make optimal use of this practice, you need to be able to answer three basic questions:
• What are your philanthropic goals?
• What are your financial objectives?
• How does the IRS impact all this?
Good year-end giving decisions are guided principally by the good that will be done in the community. You need to decide whom it is you want to help, and what kind of results you want to see your money achieve. The answer to this question may be as specific as aiding orphans in Romania, or as general as improving life for the disadvantaged in your community.
Next, you need to choose charities that will accomplish your objectives. Always be sure you investigate any charity with which you are not familiar. Be sure it is a viable organization and that it has 501(c)3 tax status.
Every year, bogus charities manage to collect thousands of dollars from well-meaning but uninformed donors. If you need help identifying charities that do the kind of work you are interested in supporting, or if you need help ascertaining whether a particular organization is reputable, there are several groups you can turn to for assistance.
One is the community foundation in your area. (The Community Foundation for Greater New Haven can be reached at 203-777-2386.) Another helpful group is the Council on Philanthropies in Hartford (860-525-5585). There is also the charities unit in the state Attorney General's office. The latter two can only help with determining the viability and legitimacy of charities.
If you truly do not have a preference as to what your money is used for, you can always make a donation to the local United Way, which will then divide it up among deserving groups in the area. Or, if you want to make a longer-lasting contribution - say, establish an unrestricted endowment fund, the interest from which is donated annually - you can contact the local community fund for help in setting that up and administering it.
Once you have dealt with the issue of what you hope to accomplish with your giving, you should look at what your personal financial goals are. For most people, reducing the amount of income they have to pay taxes on is primary. You can claim up to one-third or one-half of your yearly income (depending on the nature of the gifts) as deductible. In order to determine the exact amount, be sure to check with your accountant, tax advisor or other financial professional.
Some people have as an additional goal avoiding capital-gains taxes. There are several types of specialized donations that can be of help in this situation. One popular one is the charitable gift annuity.
End-of-year giving is also an opportunity to consider your estate-planning needs. Some couples, as they enter their later years, take advantage of plans that allow them to gift their home, but keep a life interest in it - that is, they continue to live in their home until they die. Others utilize life-income gift arrangements, which provide them with a regular income drawn from the interest off a gift they have made.
Still another financial consideration - one which is attracting increasing attention thanks to the Internet and sites such as E-bay - is that of realizing the value of your tangible assets. Gifts-in-kind have become increasingly popular in recent years.
If you are considering donating a tangible asset, there are several things you should be aware of. First, anything worth more than $500 needs to be independently appraised. Secondly, not all charities are set up to handle gifts-in-kind. If you are considering a donation of this sort, it is best to discuss it with the charity ahead of time. Or, you may want to make the donation through the community foundation, an organization that is equipped to handle this kind of giving, and which can forward the proceeds of your gift to the charity of your choosing.
The time to make your year-end giving plan is now. Although checks need not be written until December 31 - and many people like to hold on to their money for as long as possible - you must be sure to allow time to do the necessary investigations and make arrangements. Also, if your donation will be in the form of appreciable assets such as stocks, you need to set aside extra time (about a week) to allow for the transfer of funds.
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