Charitable contributions are tax deductible

Each year, as December 31 draws near, Americans start thinking of April 15… tax day. For many, careful planning takes away the dread that accompanies those thoughts. Charitable contributions historically have provided tax benefits. The Internal Revenue Service recognizes charitable contributions as a viable tax deduction. These contributions reduce your taxable income. For investors, 2017 has proven to be quite rewarding, but taking gains that increase your gross income may trigger added taxes. This means giving appreciated securities held more than 12 months to charity can be an effective strategy this year.

Example: John Doe regularly donates $10,000 to Wildlife Mississippi each year. He holds $20,000 worth of shares of XYZ Mutual Fund, bought several years ago for $10,000. John is considering selling the shares this year. Instead, he donates the $20,000 of fund shares to Wildlife Mississippi in December 2017, fulfilling his charitable intent for 2017 and 2018. With this donation, John gets a $20,000 tax deduction for 2017 and avoids tax on the $10,000 appreciation. In John’s high tax bracket, federal and state taxes might have cost him around $3,000 on a sale generating a $10,000 long-term capital gain.

With this approach, the $20,000 John would have donated in 2017 and 2018 stays in his checking account, so John can spend or reinvest that money. If you are interested in donating appreciated securities held more than a year, for a full tax deduction, contact us at 662-686-3375 for the needed information to give to your financial adviser.

For seniors, some need a way to satisfy the required minimum distribution for the year. If you are 70 or older, you can transfer IRA money to Wildlife Mississippi, up to a total of $100,000. Executed directly, such a transfer can satisfy your RMD. Example: Sarah Jones, age 77, has a large IRA. Although Sarah does not need the money, she must take at least a $17,000 RMD from her IRA in 2017.

Sarah usually donates $5,000 to Wildlife Mississippi but this year she transfers $20,000 to Wildlife Mississippi from her IRA. This distribution satisfies her $17,000 RMD for the year. For this IRA charitable rollover, Sarah gets no charitable tax deduction. Why, then, would she do this? Because qualified charitable distributions do not count as taxable income. If Sarah had taken her RMD for 2017, the $17,000 taxable withdrawal would have swollen her adjusted gross income for 2018. A higher AGI, in turn, might have subjected Sarah to special taxes or deprived her of other tax benefits.

Keep in mind that if you have ever considered using IRA distributions to make charitable contributions, now is the time.

Giving to Wildlife Mississippi can provide you with a feeling of personal satisfaction, but it also demonstrates your belief in our mission while also benefitting you personally.

James L. Cummins is executive director of Wildlife Mississippi, a non-profit, conservation organization founded to conserve, restore and enhance fish, wildlife and plant resources throughout Mississippi. Their website is www. wildlifemiss.org. The opinions in this column are Cummins’ and do not necessarily reflect the views of The Starkville Daily News or its staff.