When year-end tax planning rolls around, the Fort Sanders Foundation offers the following suggestions: Take out a copy of the federal tax return you filed for last year. Did you “itemize” your deductions? Every year, look at the deduction categories in Schedule A with an eye to maximizing those deductions before the tax year comes to an end. If you used the standard deduction, make it your goal to pile up enough deductions to “itemize” for the year. Consider “bunching” some of next year’s deductible expenses with this year’s deductions. You may be able to prepay next year’s real estate taxes this year, for example.
Investigate postponing some income into next year
Unless you expect to pay alternative minimum tax (AMT), try to defer some investment income. You might want to purchase short-term (one year or shorter) certificates of deposit that can’t be cashed without penalty before next year’s maturity date. Interest earned on a CD this year won’t be taxed until next year. U.S. savings bonds (series EE or I) defer reporting of interest until you cash the bonds. And if you plan to sell property, ask your advisors about using an installment sale that postpones some of the tax.
Take stock of your stocks…and other investments
If the market hasn’t been kind to your portfolio, consider selling some “losers.” Capital losses are fully deductible against capital gains, and any excess losses can be deducted against ordinary income up to $3,000. Capital losses can be carried over to subsequent years. Note: If you sell stock at a loss, you will have to wait 30 days before repurchasing similar shares. Of course, if you have managed some substantial appreciation (and now are subject to significant capital gain taxes), now is a good time to consider gifting these stocks to the Fort Sanders Foundation.
Contribute the maximum to your qualified retirement plan or IRAs
You’ll especially want to take advantage of any plan where an employer matches part or all of your contributions. Consider contributing to a nondeductible IRA if you are already giving the maximum to other plans.
Consider family gifts
You can give away $12,000 annually to as many different people as you wish free of federal gift tax ($24,000 per person for married couples who “split” gifts). Gifts of income-producing assets may also save the family income taxes if the recipient is in a lower tax bracket than the donor. Note: Investment income exceeding $1,700 to children under age 18 is taxed at the parents’ top tax rate (the so-called kiddie tax).
Maximize charitable deductions
You may want to make this year’s and next year’s charitable contributions before the end of this year, especially if it enables you to itemize deductions. Consider:
- Gifts using stocks and bonds which have a long-term large capital gain (the profit escapes tax and your charitable deduction will be the investment’s full fair market value, if held more than one year). Note: Gifts of securities may be deducted up to 30% of your adjusted gross income, with a five-year carryover for excess deductions. The date of delivery of gifts to charitable organizations such as Fort Sanders Foundation determines whether a gift will be deductible for that year. A check will be considered delivered to Fort Sanders Foundation as long as you mail it on or before December 31. If your securities are held in a brokerage account, please have your broker contact our office as soon as possible to ensure timely delivery and acknowledgement.
- Some gifts can give you an income for life. A charitable gift annuity or charitable trust may be the ideal way to gift appreciated stock or real estate AND receive a substantial charitable deduction, avoid capital gain taxes, receive an income stream for the rest of your life AND have the satisfaction of being acknowledged now for this future gift to Fort Sanders Foundation.
- Donors over age 70½ may be able to make charitable gifts through their IRAs. IRA donors can still save significant taxes by removing taxable income from their asset base. This is an ideal way to pay off multi-year pledges or even advance your usual annual giving (making next year’s contributions in this year). Note: The IRA trustee must transfer all gift amounts. You should not make withdrawals yourself and then write checks to your charities of choice.
- Please contact the Covenant Health Office of Philanthropy at (865) 531-5210 if you would like more information about planning gifts to any of Covenant Health’s member hospitals.
This information is educational and not to be considered as legal or financial advice. For this, see a qualified legal or financial planning professional.