Is it too late to save money on taxes and be charitable this year?

No, it is not too late. As you look at your year-end tax planning and tax saving opportunities, it is a good time to consider charitable giving. Charitable gifts increase your deductions and reduce taxable income. Consider using appreciated securities to make your charitable contribution.

If you will be in a higher tax bracket this year than next, consider accelerating your charitable gifting in order to take your deduction in this higher tax bracket year. If you are not sure which charity you would like to benefit, you can create a donor-advised "gift fund" like those managed by the JC Endowment Fund. Using a donor-advised fund, you get a charitable deduction in the year you make the gift, and you can make recommendations for charitable grants in the future.

How can I best use stock as a charitable gift?

Using stock is an excellent way to make charitable contributions, but there are some limitations. You should select appreciated stocks that qualify for long-term capital gain treatment. Also, deductions for gifts of appreciated property are limited to 30% of your adjusted gross income, but the excess may be carried forward for five years. For stocks that have been held less than a year you can only deduct your cost (tax basis). For stocks in which you have a loss, you will only get a deduction for their fair market value, not their cost. In this situation, it is better to sell the stock, take the capital loss and give the cash; then you will have two deductions, the capital loss and the charitable gift.

Appreciated stocks may be used to make current charitable gifts or used for life income gifts. Examples include a gift to a pooled income fund, a charitable gift annuity, and a charitable remainder trust. In these situations, you get a current charitable deduction while you retain the income from the property for yourself or a loved one.

What other types of gifts offer a tax savings without affecting my spendable income?

There are several types of gifts you can make without affecting your spendable income. They include:

Gift of a remainder interest in a personal residence (or farm) — The donor makes an irrevocable gift of the future interest in the property to a charity and retains the right to use the property for life. The donor gets an income tax deduction equal to the present value of the future interest without the expenditure of any cash or the reduction of income.

Gift of a conservation easement — A donor who is interested in the preservation of the natural or current state of property can give an easement to a charity, which restricts the future use of the property, and get a charitable contribution deduction for doing so. The practical measure of the deduction is the difference in the value of the property without the restriction and with the restriction. Here, too, the donor gets an income tax deduction without losing the use of the property or its income and with only a modest expenditure (the cost of valuing and granting the easement).

Gift of art or a partial interest in art — A charitable gift of valuable art (or other property) that is non-income producing may bring a donor a significant charitable deduction without the loss of spendable income. The gift of a partial interest in art may not only provide a charitable deduction, but would allow the donor partial use and enjoyment of the art.

Gift of any nonproductive asset — A charitable gift of any non-income producing asset may generate an income tax deduction. As with securities, you get a better tax benefit if the asset has appreciated in value and you have held it for more than one year. 

Making a "Deferred or Planned" gift — These are gifts where the donor makes an irrevocable gift to a charity of the future interest in the property and retains the income. This can be done in a number of ways including the use of a charitable remainder trust, a pooled income fund or a charitable annuity. Using any of these, a donor can change nonproductive property to productive without paying any tax on the sale of the property and get a charitable deduction for the value of the remainder interest.

How can I make a charitable gift and preserve or increase my income, too?

There are a number of ways in which a donor can make a deductible gift of property, retain the income for the life of the donor and/or the lives of the donor's family or others. Such a gift of appreciated property may allow the donor to obtain a substantial charitable deduction, have the property sold without taxing the gain and increase the donor's income. Well-established techniques include a charitable remainder annuity or unitrust, a pooled income fund, and a charitable gift annuity.

Bernard Nebenzahl graduated from the University of California, Berkeley and Hastings College of Law. He currently practices as a CPA with Delagnes, Mitchell & Linder. A member of the Legal & Tax Professional subcommittee of the JCEF, he has also served on the Board of Directors of the San Francisco Jewish Community Center, Congregation Emanu-El and Congregation Sherith Israel.