Do you feel you paid too much income tax for 2009? Now is the time to take steps that will reduce your 2010 taxes, or even your tax bill for 2011.
Maximize Your Deductions
In general, people who itemize deductions should pile up as many deductions as possible. In some cases, careful timing of deductible expenses can increase your deductions for medical payments, miscellaneous expenses (financial and tax consulting fees, for example) and retirement plan contributions. Charitable gifts, however, are one of the easiest, most flexible ways to increase deductions for 2010.
Every dollar you give before January 1, 2011, will be deductible up to 50% of your adjusted gross income, if you “itemize.” If you don’t know if you itemize, be sure to ask your tax preparer. Most itemizations are listed on Schedule A to Form 1040. Taxpayers who do not pay a mortgage may not generate enough deductions to itemize, unless they have another significant deductible expense, such as medical expenses exceeding 7.5% of adjusted gross income.
Excess deductions can be carried over and deducted in future years. A $1,000 contribution saves $350 for a person in the 35% tax bracket, $250 for someone in the 25% bracket. Tax savings are not the reason friends support the American Red Cross, of course, but they do enable our supporters to do more than they might have thought possible.
Give Appreciated Securities
Donors who make gifts with stocks and bonds in which they have a large paper profit (long-term capital gain) escape the tax on profits. The charitable deduction will be the investment's full fair market value, if held more than one year. Note: Gifts of securities may be deducted up to 30% of your adjusted gross income, with a five-year carryover for excess deductions.
Other assets that have gone up in value may make good gifts, including stock in a closely-held corporation and real estate. Remember that the date of delivery of gifts to charitable organizations is the test of whether a gift will be deductible for 2010. Check with our office about the rules on delivery.
Defer Receiving Income
If you plan to sell property or a business, ask your advisers about using an installment sale that postpones some of the tax. We also can show you how a contribution to the Red Cross can provide a lifetime income – with the option to defer your income until a future time, such as after retirement.
Convert to Low-Tax Investments
People in high tax brackets may consider shifting from fully-taxed, interest-bearing accounts into investments that produce tax-exempt interest or long-term capital gains and qualified dividends, some of which are taxed at a top rate of only 15%. You can make such a switch, and also qualify for significant charitable deductions, through any of several gift arrangements we have available.
Make a Gift, Increase Your Income
Joan, a long time donor, has some stocks and bonds she could use for a charitable contribution but doesn't feel she can afford to give up any income right now. One solution is to transfer her securities to a trust that will pay her a specified income for life, with the property benefiting the American Red Cross when she dies. Joan receives a charitable deduction on next April's tax return for a large portion of what she puts into the trust. And the trust is arranged so that her income is actually higher than before her gift.
We Can Assist You
Contact Kathleen Wright, JD, our Gift Planning Officer, by phone at 888.868.1992 or email her at email@example.com with any questions on planning year-end contributions, especially gifts of stocks or mutual funds. The earlier you act, the more likely the gift will make the December 31 deadline for a 2010 deduction. All inquiries are FREE and CONFIDENTIAL.