Happy Donating!

As we approach the end of the year and the holiday season, we seem to be bombarded with opportunities for charitable giving. Happily, many of us answer this call and donate generously to our favorite charitable organizations. Your generosity may also be beneficial at tax time if you remember a few IRS guidelines for charitable contributions.

  • You must itemize deductions on Schedule A to deduct a charitable contribution.
  • Donate before year end to claim a deduction for 2017. Please remember if you are making a stock donation, to submit the request a few weeks before the end of the year. This will allow your custodian enough time to fulfil the request in time for the deadline.
  • Verify that the charity is tax-exempt (sometimes called 501 (c) (3) organizations) or qualified. The IRS considers the following types of organizations qualified for charitable donation purposes.
    1. A state or possession of the United States, or the United States for public purposes
    2. A community chest, corporation, trust, fund or foundation of the United States organized for charitable, religious, educational, scientific, or literary purposes or for the prevention of cruelty to children or animals
    3. A church, synagogue or other religious organization
    4. A war veterans organization
    5. A nonprofit volunteer fire company
    6. A civil defense organization
    7. A domestic fraternal society if the contribution is used for charitable purposes
    8. A nonprofit cemetery company if the funds are used for the perpetual care of the entire cemetery

More information about qualified organizations can be found in IRS Publication 526, Charitable Contributions. You can also verify the tax-exempt status of an organization on the IRS.gov website.

  • When making your donation of cash or goods, be sure to get a receipt. The IRS requires a receipt for donations greater than $250.
  • Large donations may be limited in the current year to 50% of AGI for public charities or 20-30% for private charities. Any excess donations can be carried forward for five tax years. When planning a large gift, talk to your tax professional to develop the most beneficial giving strategy.
  • Lastly, many employers will match gifts made by their employees, so remember to check your company policy and do twice as much good!

Nancy Blackman - Parsec Financial Corporate HeadshotsNancy Blackman, Portfolio Manager

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The Perfect Gift? Ideas…From a Planning Perspective

December is here and 2016 is drawing to a close.  As we enter the holiday season, we scramble to pick the perfect gift for our family members, our friends, teachers… the list goes on.

At Parsec, we work with clients to create gifting strategies that fit into their overall financial plan.

This December we encourage you to think about giving and its potential longer term impact on both your family (children and grandchildren) and your taxes.  Let’s first review a powerful gifting strategy to younger family members: the custodial Roth IRA.

As long as there is earned income, which can come from mowing lawns, housework, babysitting etc., contributions to a custodial Roth IRA can be made up to the amount of the earned income but not over $5,500*.  For example, your 9 year old grandchild earned $1,000 over the summer through his lawn mowing business.  You can open a custodial Roth IRA for him and deposit a matching gift of $1,000. Let’s say he continues to mow lawns each summer for the next 10 years and you continue to match his earnings with a $1,000 holiday gift.  Assuming a 7% return each year, your gifts will grow to over $15,000 at the end of 10 years.  Remember this is only the beginning, the approximate $5,000 earnings in this example will continue to compound over time and ALL earnings are tax free upon withdrawal later in life.  Rewarding your grandchild’s hard work through Roth contributions is a holiday gift that offers valuable lessons on many levels.

Let’s switch gears to philanthropy.  Each year Parsec’s client service team processes hundreds of charitable gift requests from our clients.  These gifts of course offer tax advantages in various forms.  For many of our clients, the qualified charitable distribution or QCD brings the most formidable tax savings.  How does it work?  If you are over 70 1/2, up to $100,000 of your required minimum distribution (RMD) can be given directly to charity through a QCD.  The result: your AGI will be reduced dollar for dollar by the amount of the QCD.  A simple, yet impactful strategy:  on not only your charity of choice but also on your tax dollar.

As we enter this holiday season we hope that you reach out to your financial advisor to talk about gifting strategies that may be appropriate for you and your family.  Happy Holidays!

Betsy Cunagin, CFP®

Senior Financial Advisor

*$5,500 is the IRA contribution limit for 2016 and 2017.  

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