Do Good And Trim Taxes

TAX ADVICE from Julian Block

(February 1, 2007) When we contribute to Larchmont’s schools, houses of worship and other charitable organizations, most of us go the easiest, most familiar way and simply write checks or use credit cards. We receive income-tax deductions, and the charities receive money.

Benefactors who intend to make major gifts should become knowledgeable about other ways to give away their money besides just sending checks. For instance, donors can reap better tax breaks with contributions of appreciated properties that have been owned for more than 12 months and would be taxed as long-term capital gains were they to be sold. Some examples are shares of individual stocks, mutual fund shares, bonds and real estate.

Donating appreciated property is a worthwhile strategy. The measure of the charitable deduction is the asset’s appreciated value on the donation date, undiminished by the federal and state taxes that become due on the profit if you sell the property, effectively decreasing the contribution's cost. The IRS siphons off a maximum of 15 percent of gains from sales of investments, a levy that drops to 5 percent for someone in the two lowest income-tax brackets of 15 and 10 percent. Add to Uncle Sam’s take, New York State taxes that can go as high as almost 8 percent.

Let’s say you intend to fulfill a $10,000 pledge to Fields for Kids or Friends of the Larchmont Library, for example. Your long-term holdings include some shares of stocks that you acquired for $4,000 and are about to unload for $10,000.To reap a perfectly legal double benefit, contribute stock worth $10,000, rather than the same amount of money. Going the stock route makes no difference to these charities, tax-exempt entities that incur no taxes when they sell the shares and end up with close to the same amount of money. But it does make a decided difference in the size of your tax tab. Assuming you are in a combined federal and state bracket of 30 percent, a charitable-gift deduction of $10,000 cuts taxes by $3,000. In addition to that, you sidestep the taxes that are due on the $6,000 gain if you sell the stock — a federal levy of as much as $900 and whatever New York State exacts.

Want to pass this idea on to your friends or potential donors? Be sure to contact Julian Block for permission to use his copyrighted material.

Julian Block lives in Larchmont and is an attorney, syndicated columnist and former IRS investigator who the New York Times has called “a leading tax professional.”

For information about his books, adult ed courses and more articles, go to Copyright 2007 Julian Block. All rights reserved.