The end of the year is often a time of reflection about the past year and hopes for the New Year. The end of the year reflection is a unique opportunity to see how our giving can be beneficial to us and to those in need.
Cash gifts are a convenient and popular way to show your faithful support for the church or other ministries. The full amount of the gift may qualify as a 2016 charitable income tax deduction. You must make certain your check is dated 2016 and received or postmarked no later than Dec. 31, 2016.
For some people during the Advent and Christmas time there will be people missing from the table set for celebration. Year-end gifts in honor or memory of those we love is a fitting demonstration that they are remembered. These memories can be a way to enrich our lives during this special time of year.
Not everyone has the cash flow to make the type of gift that they want. Sometimes the use of investments that have increased in value (stocks, bonds, real estate, or mutual funds) will allow us to make a significant gift at this time of year. And don’t forget those investments that may have lost value over the year. When making a gift of investments that have decreased in value we may be able to sell them and take the loss on our income taxes.
There are many ways to give a gift and reserve a lifetime of income such as a Charitable Gift Annuity or and Charitable Remainder Trust. Gifts of this type could possibly increase your income and create a tax deduction. Let’s assume you are 70 years old and wish to make a $10,000 gift to the church when you are gone, but need to receive income until then. You can make the gift now and receive several attractive benefits.
First, you could receive income that exceeds what you are currently earning on the $10,000. At age 70 you may receive 6.1 percent of the $10,000 each through a gift annuity ($610) – greater than most bonds or CDs.
Next, a portion of the $610 annual annuity may be tax-free over your life expectancy. This may increase the taxable equivalent yield to over 7 percent.
Finally you will receive a 2016 charitable income tax deduction for the remaining portion of your gift. This deduction may save you $1,000 or more in federal income taxes. Making a life-income gift now offers all these advantages and provides the satisfaction of knowing you have helped your church or charitable organization in a significant way.
Sometimes we can use old life insurance policies that are no longer needed. Consider giving the policy to the church and receive a charitable income tax deduction for the lesser of your cost basis or the replacement value. This is a great way to benefit your church without reducing your checking account. If the value is more than you wish to donate, consider cashing in the policy and giving a lesser portion, your gift may sufficiently reduce or eliminate any potential taxes due from the sale.
People who are 70 ½ year old are required to take a Required Minimum Distribution (RMD) from their retirement accounts. This requirement creates a taxable event for people. The Government now allows you to give all or a portion of your RMD (up to $100,000) to your church and not have to pay income taxes on all or the portion that is given to the church. This gift must be made directly from the group that holds your retirement account to your church. You should be able to contact your retirement holder of the account and they will help you with the distribution to your church.
(Rev. Ted Frost is the executive director of the Illinois Great Rivers Conference Foundation. This article is not intended as legal/tax advice. It is always important to consult with those who prepare your taxes or financial planner to see how this can best work for you.)