Year-end charitable gifts: Time is of the essence

We want to bring to your attention two special opportunities to give to La Jolla Presbyterian Church this December while also lowering your 2016 taxes.

The first opportunity involves securities that have appreciated over the course of at least a year and a day; the second relates to the so-called “charitable IRA rollover.”

With the stock market highs this year, many taxpayers’ securities have appreciated significantly. Giving appreciated securities held long-term at least a year and a day to a qualified charity gives taxpayers a Schedule A charitable deduction for the market value of the stock.

Additionally, neither the taxpayer nor LJPC has to pay capital gains taxes when the stock is sold. That combination can result in a bigger deduction for you and a larger gift for the church.

Secondly, for those aged 70½ or older, it is once again possible to make tax-favored charitable gifts from traditional and Roth IRA accounts.

On December 18 the President signed into law legislation that retroactively extends the charitable IRA rollover for 2016 and makes this provision permanent for future years. A total of up to $100,000 can be transferred directly from traditional or Roth IRAs to La Jolla Pres free from federal income tax each year. There may also be state income tax savings. Amounts given in this way count toward required IRA minimum withdrawal amounts for the year of the gift.

To make such gifts, it is important to not withdraw funds prior to a gift, but have the gift amount distributed directly from an IRA to one or more qualified charities. For those with check writing privileges on their accounts, this may be the most efficient way to make gifts directly from an IRA.Check with us, your IRA administrator or your tax advisor for more information.

 

“Time is of the essence for these special giving opportunities,” said Daryl Bryant, LJPC Pastor of Administration. “Generous gifts of appreciated stock or charitable IRA rollovers can make a significant difference for the budget of LJPC and help further the work we are doing in La Jolla, San Diego and the World.”

elderlyfinanciallitCase Studies

Lisa Considers a Stock Gift

Lisa was considering a gift of stock. She had purchased stock 10 years ago in a well-known company with many retail stores. With the worldwide expansion of this company, the stock had increased from her original purchase price of $50,000 to a total of $100,000 in value.

Lisa decided to visit with CPA Susan about the potential gift.

Lisa: “Susan, I bought the stock years ago and earlier this year my broker suggested that I sell half of the stock. I sold $50,000 of the $100,000 of the stock. I still have $50,000 left.”

Susan: “Under the IRS rules, Lisa, you are required to divide your $50,000 cost basis between the half you sold and the half that remains. That means that half of the gain or $25,000 is going to be reported as income this year. However, if you decide to give the other half to your favorite charity, you will receive a deduction for $50,000. The deduction is based on the value of the stock on the gift date. The IRS calls that value the mean between the high and low sale price on that day. In addition, you will save capital gains tax because you bypass the gain on the half that you’ve given to your favorite charity.”

Lisa: “That sounds like a great plan. If I make that gift, I’ll be able to benefit from a large tax deduction that will more than offset the tax on my gain. Plus, the charity won’t have to pay the tax on my stock when it sells. Finally, my charity will enjoy a very nice major gift.”

Bill has Good Income This Year

Another reason for making a stock gift is that you may have a very substantial income that could cause you to pay a large income tax. Bill had purchased stock in a company recommended by his son eight years ago. His son used a computer made by this company and said to his dad that this would be a good stock to own. During that eight-year time, Bill’s $15,000 initial investment had grown to a value of $165,000. Bill also had a very good year with a large income and was talking to his CPA Tom about a charitable deduction.

Bill: “Tom, I had a great year this year and I have been thinking about making a charitable gift with my stock in the computer company. It has gone way up in value and now is worth $165,000. I could sure use that deduction.”

Tom: “Yes, that would be the right property to give. You will be able to claim a large deduction. Because you have a high income this year, you can take the full write-off. Plus, by giving the stock you bypass the gain. If you later would like to take your tax savings and make another stock investment, that is perfectly fine.”

Bill decided to make the gift. While there is a limit of a deduction in one year to 30% of Bill’s adjusted gross income, he has a high income this year and is able to take the full charitable deduction.

* Speak to a tax professional before making a pursuing a charitable giving strategy.