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How To Do Good And Save Big On Taxes

Last update on: Oct 17 2017
how to save big on taxes

For last-minute tax deductions, your best move these days often is to make charitable contributions. Whether you sold a business or investment or just have more income than expected, charitable contributions are a great way to bring taxes down.

But you have to be careful. Charitable contribution deductions are such attractive tax reduction devices these days that there are many questionable schemes being promoted. Rest assured, though, that for those who are charitably inclined, there are many legitimate ways to aid a favored cause while reducing your taxes.

The good news is that you don’t have to take the time now to find the right charity for your largesse. And you don’t have to incur a lot of lawyer’s fees to set up a charitable trust or foundation to hold the money while you take time to select the right charities. Instead, you can give directly to a community foundation, also known as a donor-sponsored fund.

These organizations, which exist in most states and localities, take donations then send contributions to charities after they have been screened. But the foundations take advice and direction from the donors who contribute to the foundations. The foundations aren’t allowed to guarantee that they will pass contributions through to the organizations of your choice, but they generally do their best to make donors happy.

That means you can give money to your community foundation this year, before Dec. 31, and take the full deduction on your tax return. Then you can take your time to investigate the charities you want to get the money. Plus you get the benefits of having your own charitable trust or foundation without the costs and headaches of setting up and running one. You don’t pay lawyers or accountants, keep records, or file separate tax returns. The community foundation does all that. You also get to take deductions up to 50% of your adjusted gross income, while if you set up a private foundation you can deduct only up to 30% of adjusted gross income in one year. If you make contributions that exceed the annual deduction limit, the excess contributions can be carried forward to future years.

The community foundation generally limits contributions to organizations within a certain geographic area. But the types of charities to which you can give aren’t limited very much. And you can give to the local chapters of national charities as well as to local and regional charities. You can direct the donations over time and get the maximum allowable deduction when you contribute to the foundation.

You can give cash. Or you can give appreciated property, such as stocks, real estate, or mutual funds. When you give appreciated property, you get to deduct the fair market value of the property and don’t have to pay taxes on the accumulated capital gains.

The community foundation does share a downside of other charitable contributions. If you are a “high income” taxpayer, you lose a portion of your itemized expense deductions, including charitable contributions. For 1999, the high income amount in 1999 is $126,600. Your itemized deductions are reduced by 3% of the amount by which your adjusted gross income exceeds $126,600. But you cannot lose more than 80% of your itemized deductions.

If you need last-minute tax deductions, are charitably inclined and have extra cash or appreciated property, check out your local community foundations. They can help you out, while you help them at the same time.

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