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Plan Ahead for Charitable Contributions
 

 

Although many people make decisions about charitable giving at year-end, it’s a good idea to plan in advance so you can make your gifts with tax-efficiency in mind. We’ll spotlight some things to keep in mind as you plan.
 
Tax Break on Charitable Donations From IRA Funds
 
Through 2007, if you’re at least age 70½, you can donate up to $100,000 of your IRA (traditional or Roth) funds to tax-exempt charities without paying income tax or early-withdrawal penalties on the distribution. You cannot deduct your donation, because the distribution will not be included in your taxable income. However, you can use the distribution to help satisfy your IRA mandatory-distribution requirement. This special tax break was made possible by the Pension Protection Act of 2006. 
 
A couple caveats are in order. First, the distribution must be made by your IRA trustee directly to a qualified charity. If you, the IRA owner, receive the distribution, you cannot take advantage of the tax break when you donate the funds. Also, the tax break does not apply to donations of IRA money to donor-advised funds, supporting organizations or private foundations.
 
New in ‘07: Stricter Rules on Documenting Cash Donations
 
Starting in 2007, in order to take a tax deduction for cash donations to charity, you must maintain proof of such donations – receipts, canceled checks, bank records, or credit card statements – in your files. You won’t need to submit any documentation with your return, but you might be required to show proof to the IRS if you’re ever audited.
 
More Stringent Requirement on Donating Non-Cash Items
 
Effective since August 2006, if you wish to deduct charitable donations of non-cash items (such as cars, clothing or household goods), the items must be in good condition or better.
 
Other Thoughts on Planning
  • Consider donating appreciated securities. If investment securities you’ve held more than one year have appreciated, donate the actual securities (instead of the proceeds) to a charity. By doing this, you’ll qualify for a charitable deduction for the current fair market value of the securities. What’s more, you’ll avoid paying tax on the appreciation.
  • Consider a gift to a donor-advised fund. By donating money to an investment account owned by a charity, you get an immediate tax deduction on your donation. You can also name one or more charities of your choosing to receive money from the account in the future.
  • Double-check that charity. Always confirm an organization’s charitable status before making a donation. It’s the only way you can ensure that your donation will be tax-deductible.
  • Itemizing is a must. To claim charitable deductions, you have to itemize deductions on your tax return. And remember that higher-income taxpayers may not receive the full deduction for charitable gifts if their deductions are subject to phase-out rules.
At Grand Wealth Management, we will help you maximize the impact of charitable giving on your tax situation and assist you in other areas of tax planning. It’s all part of our mission to provide the resources and expertise you need and deserve to improve your financial security and success.
        


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