News & Tech Tips

How Late Can You Make Donations and Still Deduct Them on Your 2012 Return?

mnarog on December 28, 2012

Giving MoneyTo take a 2012 charitable donation deduction, the gift must be made by Dec. 31, 2012. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making.

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Two Reasons to Sell Highly Appreciated Assets Before Year End

mnarog on December 21, 2012

Hold Sell DiceIf you own highly appreciated assets you’ve held long term, it may make sense to recognize gains now rather than risk paying tax at a higher rate next year:

1. The 15% long-term capital gains rate is scheduled to return to 20%.

2. Higher-income taxpayers will be subject to a new 3.8% Medicare tax on some or all of their net investment income.

As Congress and the President negotiate on how to address the fiscal cliff, it’s still unclear whether the 15% rate will be extended — especially for higher-income taxpayers.

Because a final deal in Washington may not be reached until the very end of the year — or even after Jan. 1 — you can’t necessarily afford to take a wait-and-see attitude. And the new 3.8% Medicare tax will go into effect regardless of what happens with the fiscal cliff. If you have questions about the potential tax impact on your investments, please contact us.

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The 2012 Gift Tax Annual Exclusion: Use It or Lose It

mnarog on December 6, 2012

The 2012 gift tax annual exclusion allows you to give up to $13,000 per recipient tax-free without using up any of your lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $26,000 per recipient. The exclusion is scheduled to increase to $14,000 ($28,000 for split gifts) in 2013.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2012 exclusion by Dec. 31 or you’ll lose it. The exclusion doesn’t carry from one year to the next. For example, if you don’t make an annual exclusion gift to your grandson this year, you can’t add $13,000 to your 2013 exclusion to make a $27,000 tax-free gift to him next year.

We can help you determine how to make the most of your 2012 gift tax annual exclusion.

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Save More Tax With Donations of Appreciated Stock

mnarog on November 21, 2012

Publicly traded stock and other securities you’ve held more than one year are long-term capital gains property, which can make one of the best charitable gifts. Why? Because you can deduct the current fair market value and avoid the capital gains tax you’d pay if you sold the property.

Donations of long-term capital gains property are subject to tighter deduction limits — 30% of adjusted gross income (AGI) for gifts to public charities, 20% for gifts to nonoperating private foundations. In certain, although limited, circumstances it may be better to deduct your tax basis (generally the amount paid for the stock) rather than the fair market value, because it allows you to take advantage of the higher AGI limits that apply to donations of cash and ordinary-income property (such as stock held one year or less).

Don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

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Projecting Income Can Allow Businesses to Use Timing to Their Tax Advantage

mnarog on November 14, 2012

By projecting your business’s income for this year and next you can determine how to time income and deductions to your advantage.

Typically, it’s better to defer tax. You can do so by:

  • Deferring income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services. But don’t let tax considerations get in the way of making sound business decisions.
  • Accelerating deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. But consider the alternative minimum tax (AMT) consequences first. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

In 2012, taking the opposite approach might be better. If it’s likely you’ll be in a higher tax bracket next year, accelerating income and deferring deductible expenses may save you more tax. And, because individual income tax rates are scheduled to go up in 2013, if your business structure is a flow-through entity, you may face higher rates even if your tax bracket remains the same.

Congress may, however, extend current tax rates for some or all taxpayers. Keep a close eye on Washington as year end approaches so you can adjust your timing strategy as needed if tax law changes do occur.

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