To Save on Taxes, Make Charitable Gifts Before Year’s End

White Plains, NY (Law Firm Newswire) December 16, 2013 – If one wishes to make charitable gifts as part of a tax-saving strategy, now is the time.

Although tax returns are not due until April 15, December is an excellent time to do a “dry run” on one’s tax return in order to establish an estimate of what one expects to pay in taxes. A dry run can also help to determine what charitable giving is possible before the end of the year in order to reduce taxable income and lower tax bills. Newly retired individuals may especially benefit from such an evaluation of their tax returns, as retirees are often unclear on how to manage taxes in retirement.

If there are problems with withholding on pensions, Social Security or IRA withdrawals, then an individual may end up paying penalties and interest at tax time. IRA account owners can make use of one key strategy to deal with any underpaid taxes: it is possible for IRA owners to make a distribution but withhold the whole sum for taxes. The IRS will not consider the payment late, but instead treat it as taxes paid throughout the year.

Charitable IRA rollovers offer seniors another IRA strategy. After age 70 1/2, owners of traditional IRA accounts must begin taking required minimum distributions. However, they can make direct transfers of up to $100,000 from an IRA to qualified charities. These transfers count toward the required minimum distribution and do not count as income.

One may also wish to make gifts to friends and family members before the end of the year without triggering a gift tax. The limit is $14,000 for individual givers and $28,000 for married couples, and gifts may be made to as many individuals or couples as a person wishes.

Anyone wishing to make charitable contributions before the end of the year should be aware of the rules needed to time different types of gifts so that they count for the current year.

When donating to a charity by check, the effective date of the donation is the date the check was mailed. When giving to non-charity donees, the gift is effective when the check clears.

Giving stock to a charity by certificate form is effective on the date of transfer in the records of the issuer. Giving stock to a charity by electronic transfer is effective on the date the issuer shows that the stock is received (which can take several days). For non-charity donees, the gift is effective when the transfer is made on the books of the corporation (which can take weeks).

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