Tips for Charitable Donors Who Can’t Use Deductions
Only about one-third of U.S. taxpayers itemize federal income tax deductions, meaning that the other two-thirds, when they make charitable contributions, generally receive no tax benefits. Nonitemizers also include individuals with relatively high incomes. IRS statistics for the most recent tax year available showed that nearly 2 million taxpayers with adjusted gross income of $100,000 to $200,000 used the standard deduction. Roughly 200,000 returns filed by taxpayers with AGI of $200,000 to $1 million also did not itemize.
IRS studies indicate that older taxpayers, in particular, use the standard deduction, which for 2012 is $7,400 for individuals who have reached age 65 and $14,200 for joint returns where both spouses are 65 or older. Seniors often no longer have mortgage interest to deduct and also incur lower miscellaneous expenses and state sales or income taxes.
A few donors have the opposite problem: They are unable to deduct all their charitable contributions due to the deduction ceilings (50 percent of adjusted gross income for cash gifts and 30% for gifts of long-term capital gain property), even with the five-year carryover for excess deductions. But tax savings may yet be available to these donors, apart from the charitable deduction, and it may be possible to restore deduction benefits to nonitemizers.
Tax and financial planners generally recommend a four-part strategy for reducing clients’ income taxes: Deduct as much as possible (or strive to qualify for tax credits); divert investment income to persons in a lower income tax bracket; defer tax liabilities to a future date through qualified retirement plans, savings bonds, growth stocks, deferred annuities, etc; and convert from ordinary income investments to arrangements with better tax results, such as qualified dividends, long-term capital gain investments and bonds that produce tax-exempt interest. All of these strategies have counterparts in charitable gift planning that can produce tax savings for clients who can’t use charitable deductions.
Copyright © by R&R Newkirk. All rights reserved.
IRS studies indicate that older taxpayers, in particular, use the standard deduction, which for 2012 is $7,400 for individuals who have reached age 65 and $14,200 for joint returns where both spouses are 65 or older. Seniors often no longer have mortgage interest to deduct and also incur lower miscellaneous expenses and state sales or income taxes.
A few donors have the opposite problem: They are unable to deduct all their charitable contributions due to the deduction ceilings (50 percent of adjusted gross income for cash gifts and 30% for gifts of long-term capital gain property), even with the five-year carryover for excess deductions. But tax savings may yet be available to these donors, apart from the charitable deduction, and it may be possible to restore deduction benefits to nonitemizers.
Tax and financial planners generally recommend a four-part strategy for reducing clients’ income taxes: Deduct as much as possible (or strive to qualify for tax credits); divert investment income to persons in a lower income tax bracket; defer tax liabilities to a future date through qualified retirement plans, savings bonds, growth stocks, deferred annuities, etc; and convert from ordinary income investments to arrangements with better tax results, such as qualified dividends, long-term capital gain investments and bonds that produce tax-exempt interest. All of these strategies have counterparts in charitable gift planning that can produce tax savings for clients who can’t use charitable deductions.
Copyright © by R&R Newkirk. All rights reserved.
