Vail Valley Financial Focus: Charitable giving is a ‘win-win’ |

Vail Valley Financial Focus: Charitable giving is a ‘win-win’

Charlie Wick and Kevin Brubeck
Vail, CO, Colorado

Thanksgiving is a good time to be thankful for the charitable, educational and religious groups that provide your community with valuable services. And now may be a good time to consider supporting these groups because, if you contribute before the year is over, you may “do well by doing good” through valuable tax deductions.

To illustrate the benefit of these deductions, let’s assume you’re in the 25 percent tax bracket. If you give $100 to a qualified charity, you can deduct $100 (with a tax benefit of $25) when you file your taxes. Consequently, the real cost of your donation is just $75 ($100 minus the $25 tax savings).

As you consider your charitable gifts, keep the following points in mind:

• You must donate – not just pledge. You can make a pledge to donate, but the amount is not deductible until you actually pay it.

• You must contribute to a qualified charitable group. For your gift to be deductible, it must go to a qualified tax-exempt organization – either a religious group or a group that has received 501(c)(3) status from the IRS. If you’re unsure if the group you want to support is tax-exempt, just ask.

• You must itemize. To claim a charitable deduction, you must itemize deductions on your taxes.

You may have other financial assets, such as stocks, that you can give to charitable groups, and these gifts also can earn you tax benefits. For example, suppose you give $500 worth of stock in XYZ Company to a charitable group. If you’re in the 25 percent tax bracket, you can deduct $125 when you file your taxes for 2010. But by donating the stock, you avoid paying any capital gains taxes you might have incurred if you had sold the stock yourself.

Making charitable gifts now may help you reduce the size of your estate and potentially lower any future estate tax burden on your heirs. Right now, federal estate tax laws are in flux, but it’s possible that, one day, your estate might be large enough to generate estate taxes. If you wanted to formalize your charitable gifts and help your estate planning, you might consider establishing a charitable remainder trust. Under such an arrangement, you’d place some assets, such as stocks or real estate, in a trust, which could then use these assets to pay you a lifetime income stream.

When you establish the trust, you may be able to receive a tax deduction based on the charitable group’s “remainder interest” – the amount the charity is likely to ultimately receive. Upon your death, the trust would relinquish the remaining assets to the charitable organization you’ve named. Keep in mind, though, that this type of trust can be complex. To establish one, you’ll need to work with your tax and legal advisers.

In any case, be generous during this season of giving. You’ll be helping a charitable group accomplish its worthy goals – and you may be helping yourself when tax time arrives.

Edward Jones, its employees and financial advisers are not estate planners and cannot provide tax or legal advice. Please consult your attorney or qualified tax advisor regarding your situation.

This article was written by Edward Jones for use by local Edward Jones Financial Advisers. Taylor Leary, Tina DeWitt, Charlie Wick and Kevin Brubeck are financial advisers with Edward Jones Investments. They can be reached in Vail at 970-476-1791, in Edwards at 970-926-1728 or in Eagle at 970-328-4959.

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