Friday, December 21, 2012

Giving, Wile E. Coyote, and the Fiscal Cliff

Wily.  Wile E.  Wile E. Coyote.   A more cunning cartoon character would be hard to conceive.  The complex contraptions he would concoct were almost Rube Goldberg-like.  The more complicated, the more certain he was that they would work, yet they always failed.  Time after time we saw him catapult off of a cliff in his hungry quest for the Road Runner.  Beep, Beep!  Foiled again!

Now, I’m not saying the government is Wile E. Coyote or that the fiscal cliff is one in which Americans will be catapulting.    However, if similarities do exist, feel free to make them on your own.

What I am saying is that the tax deduction for charitable giving, “one which has been part of the tax code since 1917, is coming under pressure as part of a fiscal agreement being hammered out on Capitol Hill”, as reported by the Wall Street Journal.

Not knowing what to expect in 2013, financial advisers are reporting that some clients are banking on the certainty of 2012.  In that light they are accelerating charitable gifts and large medical expenses, selling appreciated stock, and even prepaying mortgages…all for the 2012 deductions that are known vs. the 2013 unknown.

For nearly a century, tax deductions have ruled the roost.  Want to reduce your taxable income?  It’s easy…just give to churches, schools, or worthy charities.   However, without knowing how deductions might change next year due to the fiscal cliff, and wanting to minimize the amount owed to Uncle Sam this year, many donors are considering paying forward donations right now.  But, how do you do that?

According to the Wall Street Journal, many tax advisors are encouraging their clients to employ a Warren Buffet strategy now, that may disappear in an upcoming fiscal agreement:  Donating stock.

They state, “Under current law, donations of assets that have risen in value, such as shares of stock, often qualify for a deduction at the full market price, enabling donors to skip paying capital-gains tax on the appreciation.  With the stock market having recovered much of its losses from 2007-09 and the possibility of deduction limits next year, many advisers say now is a good time to give stock.”

Another alternative might be to start a charitable fund at the Community Foundation.  Charitable Donor-Advised Funds have low annual fees, plus they provide donors with the opportunity to make charitable gifts NOW that don’t have to be allocated to designated charities until a later date.  This means that a donation to a newly-created Donor-Advised Fund could secure a full deduction for 2012, yet push decisions about charitable gifts to 2013…or later.

Foundations are experts in setting up new funds; we set them up on a weekly basis.  So, if a donor-advised fund seems like it could help you to meet your charitable goals, give us a call (765.662.0065).  As long as your donation is made (or postmarked) prior to midnight on December 31, 2012, you can claim your charitable gift tax deduction.  Your designated fund name and purpose can be determined when the fund agreement is completed in early 2013.   After money is given to a Donor Advised Fund at the Community Foundation, it is invested and can grow tax-free until you, the donor, advise the Foundation which eligible nonprofits to send checks to—at which point there is no deduction.

Obviously, we are not tax experts, but we can be the hub of your charitable giving now and in the future.  Please check with your financial advisor and see if donating stock or setting up a Donor Advised Fund for charity is a good solution for you. 

It sure beats rocketing off of the fiscal cliff like Wile E. Coyote.  Maybe, for once, we can be the Road Runner this time.  Beep, Beep! 

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