The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

Timing of charitable gifts, and type of property contributed, can be important

By Perry D’Alessio CPA www.DaleCPA.com

Charitable contributions should be timed so as to obtain the maximum tax benefits, either in 2012 or 2013. If a taxpayer, like a physician, plans to make a charitable contribution in 2013, s/he should consider making it this year instead if speeding up the deduction would produce an overall tax saving, e.g., because the taxpayer will be in a higher marginal tax bracket in 2012 than in 2013.

On the other hand, a taxpayer who expects to be in a higher bracket in 2013 should consider deferring a contribution until that year. This task is more difficult than in prior years because of uncertainty over future rates.

In making any sizeable charitable contributions, to the extent possible, clients should make the contributions in appreciated capital gain property that would result in long-term capital gain if sold. This way, a deduction generally is obtained for the full value of the property, such as shares of stock, etc., while any regular income tax on the appreciation in value is avoided. (However, for tangible personal property, this favorable treatment is only available if the donated item is related to the exempt purpose of the donee charity).

Observation:

If rates rise after this year, the tax savings on a later sale could be even greater.

It should be noted, however, that contributions of appreciated capital gain property generally are subject to a 30%-of-AGI (Adjusted Gross Income) ceiling, instead of the usual 50% ceiling, unless a special election is made to reduce the deductible amount of the contribution.

Observation:

Making the election will limit the donor’s deduction to the basis of the contributed property. In most cases, the election should be made only if the fair market value of the property is only slightly higher than the basis of the property.

IRA distributions to charity

Older taxpayers who plan to use individual retirement account (IRA) distributions to make charitable contributions should bear in mind that the favorable tax provision for doing so expired at the end of last year. That provision allowed taxpayers age 70 1/2 or older to take advantage of an up-to-$100,000 annual exclusion from gross income for otherwise taxable IRA distributions that were qualified charitable distributions. Such distributions weren’t subject to the charitable contribution percentage limits and weren’t includible in gross income. Since such a distribution was not includible in gross income, it would not increase AGI for purposes of the phase-out of any deduction, exclusion, or tax credit that was limited or lost completely when AGI reached certain specified levels.

To constitute a qualified charitable distribution, the distribution had to be made after the IRA owner attained age 70 1/2 and made directly by the IRA trustee to specified charitable organization. Also, to be excludible from gross income, the distribution had to otherwise be entirely deductible as a charitable contribution deduction under the Internal Revenue Code provisions, without regard to the charitable deduction percentage limits.

Even though a direct distribution from an IRA to a charity was not included in the taxpayer’s gross income, it was taken into account in determining the owner’s required minimum distribution (RMD) for the year.

Qualified Contributions

Qualified charitable contributions aren’t available for distributions made in tax years beginning after Dec. 31, 2011 While there has been some talk of an extending this provision, it is unclear whether it will make it in any such package and if it does, whether there would be a rule allowing January 2013 distributions to be treated as made on Dec. 31, 2012.

Thus, while IRAs may be a potential source of funds for making charitable contributions between now and year end, clients age 70 1/2 or older must be informed that using an IRA to make contributions will be more costly if the special break is not retroactively revived.

Recommendation: An eligible taxpayer interested in making a charitable contribution from his IRA directly to a charity, and who hasn’t yet taken his 2012 RMD from the IRA, should consider waiting until the end of the year to take the RMD.

Recommendation: An eligible taxpayer interested in making a charitable contribution from his IRA directly to a charity, and who hasn’t yet taken his 2012 RMD from the IRA, should consider waiting until the very end of the year to take the RMD. If the rules to see if qualified charitable distributions are revived.

Channel Surfing the ME-P Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register. It is fast, free and secure.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• PRACTICES: www.BusinessofMedicalPractice.com
• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
• CLINICS: http://www.crcpress.com/product/isbn/9781439879900
• ADVISORS: www.CertifiedMedicalPlanner.org
• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
• Dictionary of Health Economics and Finance
• Dictionary of Health Information Technology and Security
• Dictionary of Health Insurance and Managed Care

Filed under: Taxation | Tagged: Charitable contributions, Perry D'Alessio CPA, Year-end Tax Planning Insights | 1 Comment »