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To Your
Wealth Michael
P. Haubrich, CFP November,
2006 |
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Hard to
believe it is already November – just 52 shopping days before Christmas. As I
face the reality that it is not long before 2006 will be a memory, I
anticipate my favorite holiday – Thanksgiving. On this day I ponder all the
reasons I have to be thankful. Good health, family, wonderful friends, our
clients and, above all, living in the greatest land of opportunity at a quite
exciting time. Part of
our family tradition over Thanksgiving dinner is for each member to share one
thing about which they are thankful. Another of my personal traditions is to
make my annual commitments to supporting causes and organizations that create
reasons for others feel thankful. With so many causes and so many fine
organizations to choose from, my task can be quite daunting. I always
consider organizations like Health Care Network (which provides free health
care to the uninsured in our community), Once I
have identified the list of charitable organizations I plan to support, I
look at how to best fund the gifts I plan to make. The simplest way is by
writing a check. For relatively small donations (under $250) this makes the
most sense. Be sure to get a receipt from the charity for amounts in excess
of $250 as you will need this for your itemized deductions. For
larger gifts, writing a check or a cash donation may not be the most tax
advantageous method to donate. Donating appreciated property (stocks, real
estate, valuable art, etc.) provides a tax deduction for the fair market
value without recognizing the capital gains from a sale. By avoiding the
capital gains tax, a donor can save up to fifteen percent of the appreciated
value of the asset. For
example, assume you own a stock that you paid $1,000 years ago and today it
is worth $11,000. By donating that stock you will get a tax deduction for the
full $11,000, and the charity sells the stock and pays no capital gain. If
you sold the stock and donated the cash proceeds, you would have a taxable
gain of $10,000 and would owe up to $1,500 of Federal income taxes (you would
also owe state income taxes depending on your state of residence). After
paying the Federal capital gains tax, you would have $9,500 left for your
charity. By donating the appreciated stock, your gift was leveraged up by the
amount you would have paid in capital gains to the charity’s benefit. Currently,
giving from the heart may be harder for those individuals who do not itemize
their deductions. Unfortunately, there is no provision to deduct charitable
donations unless you itemize. There is now a way to make a contribution and
get an income tax benefit even though you do not itemize. Under certain
circumstances you can transfer, tax-free a portion of your IRA to a
qualifying charity. That means you would be able to gift funds that were
never taxed. This
provision was passed into law as part of the Pension Protection Act of 2006.
There is a two year window (tax year 2006 and 2007) after which this
provision disappears. While this gifting strategy has great potential, not
all charities and donors qualify for this income exclusion. Check with your
advisor for the qualifications for this strategy. Be sure
to work with your financial or tax advisor to assist you in ensuring that
your charitable gifting strategy is consistent with your objectives and can
truly be a gift that lasts long after the holidays have passed. Note to
tax and financial advisors: The Racine Community Foundation is sponsoring a
two hour continuing education session on November 28 featuring University of
Missouri Law Professor, Christopher Hoyt. Hoyt will be covering charitable
gifting and estate planning strategies including the IRA gifting provision.
For more details, call Racine Community Foundation at (262)632-8474. Mike Haubrich is president of Financial Service Group, a
registered investment advisory firm in |