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Advising Your Clients on Philanthropy: Year-end Planning

by Steve Lande on Categories: philanthropy

Advising Your Clients on Philanthropy: Year-end Planning
The end of the year is an opportune time for your clients to take a fresh look at their financial and tax planning strategies. Your clients’ favorite charities are encouraging them to use the next few weeks to review their investment portfolios and consider a variety of tax, financial and charitable giving options. Of course we are also reminding them that it is advisable to consult their tax and investment professionals before taking any final action. Consider the following:
2014 Tax Rates: Early last year Congress passed the American Taxpayer Relief Act (ATRA), which permanently extended the Bush-era individual income tax rate cuts for most taxpayers. ATRA also put in place a top income tax bracket of 39.6 percent for higher-income taxpayers and brought back a phase-out that reduces the benefit of certain itemized deductions. Married taxpayers with income in excess of $250,000 and individuals with income in excess of $200,000 must now pay an additional 3.8 percent Medicare tax on investment income such as capital gains and an additional 0.9 percent tax on wage income above these thresholds. Because the top tax rates are up, certain strategies to defer income, accelerate deductions and avoid capital gains continue to be important for many taxpayers.
Shift income and deductions where possible: Deferring receipt of income to 2015 or accelerating deductions into 2014 by prepaying a deductible expense can lower your clients’ tax bill. Accelerating payment or increasing charitable contributions at year-end is an effective planning strategy to reduce tax liability and get needed financial support to favored charities sooner. The alternative minimum tax must be factored in to determine if shifting income and deduction strategies provide maximum savings in specific situations. As always, gifts of cash must be mailed before the end of the year and gifts made by credit card must be completed before the end of the year to qualify for a 2014 tax deduction.
Recognizing Investment Gains and Losses: The top tax rate for long-term capital gains (gains on the sale of assets held for more than one year) is now 20 percent for taxpayers in the 39.6 percent income tax rate bracket ($450,000 for married taxpayers and $400,000 for individuals). The tax rate actually reaches 23.8 percent when you factor in the health care surtax. Charities are telling your clients that the contribution of appreciated securities, including stocks, bonds, and mutual funds, remains one of the most tax-efficient ways to redeem charitable commitments. Appreciated securities can also be donated to create or add to a Donor Advised Fund or any permanent endowment as well. Charities are reminding your clients that they are entitled to a tax deduction for the full fair market value of such gifts, that they pay no capital gains tax on any appreciation, and that they should be sure to give the securities directly to the charity rather than selling them and donating the proceeds. 
Other charitable planning strategies that can be used to reduce tax liability: There are other techniques that may deserve your clients’ special consideration as interest rates remain relatively low:
  • Create a life income gift, such as a Charitable Gift Annuity or a Charitable Remainder Trust.  In addition to avoiding capital gains tax, the Charitable Gift Annuity or Charitable Remainder Trust can provide you with an income stream and a current charitable income tax deduction. 
  • A Charitable Lead Trust pays income to charity for a period of years and then transfers the trust property to others, including family members. It can provide a current charitable contribution as well as reduce federal transfer tax. 
IRA Charitable Rollover Not Yet Extended: While there have not been any significant changes in individual taxes this year, we must note that the IRA Charitable Rollover has not yet been reinstated. Over the past seven years, many individuals over age 70 ½ have utilized the IRA charitable rollover to transfer up to $100,000 each year from their retirement accounts directly to public charities. Unfortunately, the IRA Charitable Rollover expired at the end of last year and, as this is written, Congress has not yet acted to put the provision back into the law. We believe there is a strong likelihood that this will happen at some point. 
At the Greater Miami Jewish Federation, professionals are always available to work with you and your clients to maximize the benefit of these and other tax and charitable gift planning strategies. Happy holidays to all, and thank you for your generous support. 
Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as Federation’s Authorized House Counsel. Prior to joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Steve earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Pittsburgh Jewish Federation. He is also admitted to the practice of law in Pennsylvania.
Steven Woolf, Senior Tax Policy Counsel for The Jewish Federations of North America, contributed to this article.

For more information about year-end charitable gift planning opportunities at The Foundation of the Greater Miami Jewish Federation, please contact Foundation Director Steve Lande at or 786-866-8623, or consult 
By Stephen C. Lande
Greater Miami Jewish Federation
4200 Biscayne Blvd.
Miami, FL 33137
South Florida Legal Guide 2015 Edition

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