Give Assets, Get Tax Breaks

It’s beginning to look a lot like tax season? Maybe it seems a bit early to be worried about an April 15 deadline, but time is running out for charitable-minded individuals who are looking for ways to reduce their taxes for 2007. And December is a great time to give gifts to a favorite charity or nonprofit.

“First, determine what you want to ‘gift,’” says Maurice Quiroga, executive VP and managing director of National City Private Client Group. “Whether it’s highly-appreciated assets, cash or in-kind donations, each has a different tax implication. Taxpayers can itemize 20 percent to 50 percent of their gross adjusted income on a yearly basis, and people need to assess what amount they’ve already given (in 2007) to see if they can maximize up to that 50 percent threshold.”

Quiroga says now is a great time to plan for tax breaks, as most individuals are fairly close to assessing what their adjusted gross income is for the year. “Outright gifts are ones that benefit immediately,” he says. “You receive immediate income tax and gift tax deductions, so for someone who wants to make an impact right away, it’s a great thing to do. You want to maximize your income tax savings, which are tied to your adjusted gross income, and if you go over the amount for this year, you can always rollover the difference into next year’s taxes.”

He encourages clients to first decide in what area they want to maximize their benefit, whether in the income tax, gift tax, capital gains tax or estate tax sector. “Once they determine where they want to receive special tax treatment, then they can look at what kind of gift they want to make,” Quiroga says. “Today, most people who give charitably want to take advantage of income and capital gains tax breaks. The gift recipient can benefit while the granter is still alive, and the granter can enjoy and see the results from the gift.”

For philanthropic-minded locals in search of a way to give back to the community, the Greater St. Louis Community Foundation is a regional public charity with a primary mission to help St. Louisans put charitable dollars to work locally, nationally and internationally. “We’re a service organization that facilitates charitable giving for people who call St. Louis home,” says David Luckes, president and CEO.

Regarding immediate benefits for 2007 tax returns, Luckes has some timely advice for residents 70 1/2-years-old or older who have IRAs. “If you’re already taking the required minimum distribution from your IRA account, this is the last year of temporary permission from the federal government that allows you to take up to $100,000 out of your IRA to give to a public charity and avoid all income tax on that distribution,” he explains. “Normally, you have to pay taxes on distribution, but this is the second year of a two-year window that allows this benefit. So if there’s a charity you’ve been thinking about making a significant gift to and you don’t necessarily need all of the income you’re getting from your IRA, it’s a great asset to give to a charity. Because if you keep it and pass it on to your heirs, they’re going to have an income tax obligation on it.”

First and foremost, Luckes stresses that financial planning and giving go together, and one of the tactics he recommends is giving away assets instead of writing a check. “For churches, colleges and organizations, it’s a really nice way to get tax preference dollars if you’re thinking pure tax benefits before Dec. 31,” he says. “If I write a check to a charity and I get a tax deduction, it ends up costing me about 65 cents on the dollar to give that gift. But if I give an appreciated asset, like appreciated stock or real estate that I’ve held for more than a year, it costs me 47 cents on the dollar. That’s roughly a 30 percent premium.”

Luckes admits he’s amazed at the number of affluent people with stock portfolios who give cash instead of assets to their favorite organizations. “I have clients tell me, Oh we probably gave away $50,000 (to charities) last year we just wrote them checks. And I’m thinking to myself, 30 percent of $50,000 that’s $15,000 more you could have either given to the charity, or $15,000 you spent without needing to. It’s not as widely understood as it should be.”

But don’t charities prefer the convenience of a check or even cold, hard cash? “A soup kitchen might have a little trouble with a gift of stock, but the majority churches, schools, hospitals and universities are capable of taking a stock gift,” Luckes says. “As part of our overall mission to facilitate and promote charitable giving within the region, we try to help close the gap for those who may need assistance in this area.”