Marc Soss posted on April 01, 2009 00:09
New and existing tax law presents us with several opportunities with regard to charitable planning in 2009. Charitable gifts can be made both during your lifetime and at death. Hopefully, when contemplating these options, you will consider including the Naval Reserve Association in your charitable plans.Remember the old saying, “It is better to give than to receive.”
Charitable Gift
Most charitable donations come in the form of cash or property (art, automobile, etc.). Donations are deductible if made to or for the use of a qualified charitable recipient. In order to utilize the deduction, the taxpayer must itemize his or her tax deductions on his or her income tax return. The deduction amount for charitable contributions is limited to (1) 50% of the taxpayer’s Adjusted Gross Income (AGI), and (2) 30% or 20% of AGI, depending on the type of property donated and the recipient organization. Charitable contributions in excess of these limits can be deducted in each of the next five years until they are used up, but not beyond that time.
IRA Rollover
The Emergency Economic Stabilization Act of 2008 (“EESA”) created an opportunity for a taxpayer to contribute (through a charitable rollover) his/her Required Minimum Distribution (“RMD”) from an Individual Retirement Account (“IRA”) directly to a charitable organization. The charitable rollover is limited to $100,000 per taxpayer. Utilization of the technique will allow a taxpayer to avoid (1) inclusion of the RMD in his/her Adjusted Gross
Income (“AGI”); (2) the payment of federal and/or state income tax on the RMD; (3) the phase out of income tax exemptions resulting from higher AGI levels; (4) increased Social Security taxation (avoidance of the 50% or 85% level of taxation); and (5) the higher capital gains tax rate (15%). It will benefit eligible taxpayers who utilize the standard deduction and would not otherwise be able to benefit from the deduction on their income tax return. This technique is not eligible for a corresponding charitable deduction. Eligible charitable organizations include
a (1) community foundation; (2) private foundation (which meets the conduit rules); (3) college or university scholarship fund; or (4) relief organization. The charitable rollover may also be utilized to satisfy a charitable pledge.
Charitable Trust
Charitable trusts are another widely utilized tool used to benefit a charitable organization (presently or at a future date) and an individual (the grantor or heirs) with a reduced transfer tax.
Charitable Lead Trust: With a Charitable Lead Trust (CLT), the charitable organization receives a current income stream (fixed amount or percentage of annual value) for the life of the trust or a term certain. The remaining funds, if any, will then pass to whomever the donor designates (usually descendants) as the remainder beneficiary. The end result is both a charitable gift and estate tax deduction. This technique is increasingly more attractive with the applicable federal rate (“AFR”) at a historic low. The CLT can be structured to maximize the present value of the charitable gift while leaving a minimal remainder value for gift tax
purposes. With the currently depressed AFR, it is likely that the CLT funded assets will increase in value at a rate in excess of the AFR. This will result in a win-win situation for both the charitable organization and remainder beneficiary.
Charitable Remainder Trust: With a Charitable Remainder Trust (CRT), the individual(s) who established the trust will receive a current income stream (fixed amount or percentage of annual value) for his/her/their lifetime(s)
or a term certain. Upon his/her/their death(s) or expiration of the term, the remaining funds will pass to the charitable organization as the remainder beneficiary. Use of a CRT will allow the grantor to avoid capital gains tax on the donated assets and provide an income tax deduction for the fair market value of the remainder interest. The end result is a charitable gift, income tax deduction, and estate reduction. The rules governing charitable
contributions are rather complex. It is important to consult with your tax advisor and/or financial planner prior to implementing any charitable giving program to insure you maximize all of the benefits. Always remember, the
benefits of charitable giving will always outweigh any onerous tax filing requirements. We encourage you to be
generous in your contributions.