I don't want to sound like Ebenezer Scrooge, but I do want you to think twice before you write another check to charity. Why? Because there might be a much smarter way to be generous. Consider giving appreciated securities -- stocks or mutual fund shares -- instead of cash.
When you give $1,000 in cash, you get to deduct $1,000, and that saves you $250 in the 25% bracket. (Any state income tax savings are gravy.)
But let's say you have $1,000 worth of mutual fund shares that you bought more than a year ago for $500. If you sold those shares, you'd owe $75 in tax on the profit even at the special 15% capital gains rate. But if you donate those shares, the charity gets the full $1,000 (it doesn't have to pay tax on the profit when it sells), you avoid that $75 tax bill and you still get to deduct the full 1,000 bucks. It's a win, win, win situation.
What if you don't want to part with your investment? Give it away, anyway, and use the cash you would have donated to re-invest. The maneuver is perfectly legal and simply wipes out the tax bill that's built up so far.
Giving appreciated securities sounds like a maneuver for fat cats, but it can pay off for philanthropists of more modest means, too. The charity you plan to help should be more than willing to fill in the details. Time is running out, though, and it will take a little longer than writing out a check. The transfer of ownership has to be completed by December 31 to lock in the deduction for your 2004 return.
GETTING STARTED
