Fagan Associates Archive for December, 2008

This article is the third of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays during December in “The Record” and include, in order,”Year-End Tax Planning for Shareholders of Individual Stocks and Bonds” which appeared November 23rd; “Year-End Tax Planning for Shareholders of Mutual Funds” which appeared last week; this article and finally “Investment Portfolio Re-Balancing for the New Year” which will appear next Sunday. Following this series, we will immediately provide readers with a Review of 2008 and our Investment Outlook for 2009.

December 7, 2008 …Given the nature of our business, in our opinion the most obvious and effective way to give to a charitable organization is through a gift of appreciated stock. This is a win-win situation for both the taxpayer and the charity. The taxpayer can deduct the market value of the stock on the date of the gift and the charity gets the donation. Furthermore, by donating the appreciated stock rather than selling the stock and donating the cash proceeds, the taxpayer also avoids any capital gains tax. Please note that this only will work with appreciated securities within taxable accounts. Should you hold a stock that has depreciated in value, it is generally wise to sell the stock and donate the cash proceeds. Utilizing this method, the taxpayer can write off the capital loss up to current IRS limitations.

Readers will note that the above paragraph does not pertain only to appreciated stock, but rather to all appreciated assets, including bonds, mutual funds and real estate.

This past October, President Bush extended a law that enables taxpayers age 70 1/2 to exclude from adjusted gross income qualified charitable contributions up to $100,000 per year from either a traditional or Roth IRA. Prior to the passing of this legislation, a taxpayer would have to first withdraw the money from his IRA and then make the contribution. Many times this withdrawal resulted in the taxation of the Social Security Benefits of the taxpayer, reductions in property tax assistance and reductions in other government sponsored programs. This law allows the taxpayer to circumvent this step thereby eliminating the prior pitfalls noted in the preceding sentence. Additional benefits to rolling over the IRA distribution directly to a qualifying charity is that this donation qualifies toward the owner’s minimum required distribution, but does not count toward the IRA owner’s maximum 50% cash contribution limit as a percentage of their adjusted gross income.

One final way to get into the charitable giving mood this holiday season is through gifts of life insurance policies. To accomplish this transfer, the current owner must name the qualified charitable as either the new owner or the irrevocable beneficiary. If the owner does one of these then he/she is able to obtain a tax deduction on the present value of the insurance contract or his/her accumulated premium payments, whichever is higher.

As always, please be sure to check with your tax advisor prior to making any sizable charitable contributions.