Heritage Fund : The Community Foundation of Bartholomew County

5 Important Tax-Saving Principles

Number One

You already have a charitable giving partner - the government. Since 1917, Congress has granted favorable tax treatment to individuals who choose to make charitable contributions to the charities of their choice -- whether through current outright gifts, deferred gifts or bequests. Through the effective use of the charitable deduction, the government shares in the amount of the ultimate gift by reducing the amount of taxes you would otherwise pay.

Number Two

"Giving while you're living" is a tax-wise idea. The reason is the income tax deduction - both federal and state. Charitable gifts made during your lifetime provide an income tax deduction not available through a bequest gift. Because the outright current gift is no longer includable in your estate, these gifts ultimately avoid estate taxes as well.

Number Three

Giving assets is better than giving cash, especially long-term, highly appreciated assets. This is because of the dual tax benefit of an income tax deduction based upon the fair market value of the gift plus the added benefit of avoiding the capital gains tax.

Number Four

Planned giving (i.e. charitable remainder trusts, etc.) provides three powerful benefits. First, they provide significant income tax and estate tax benefits. They provide a lifetime income stream as well as a significant remainder gift to charity. Life income plans offer you the opportunity to make a current commitment to charity, receive a life income stream for you and your spouse, avoid an immediate capital gains tax on a gift of appreciated property, receive an income tax deduction for a percentage for the total amount gifted and remove the property from your estate which may provide significant estate tax savings.

Number Five

Don't forget about your pension plan as a giving opportunity. "Income in respect of descendent" assets such as pension plans generally provide better tax benefits in a testamentary gift. The best type of asset to gift to charity through an estate will normally be an asset that produces taxable income. Most assets that an heir inherits are free from income tax. However, with the exception of a surviving spouse, an heir will pay income tax on amounts received from a decedent's retirement plan. If you are going to make a charitable bequest, it is usually better to transfer assets subject to income tax to charity and transfer non-taxable assets to heirs.

Prospective donors are advised to seek the advice of a financial advisor or attorney before entering into any charitable planned gift. If we can help, call Lisa Shafran at 812-376-7772 or lshafran@heritagefundbc.org.