For more information, please contact Daniel Hoebeke, Senior Development & Gift Planning Officer:
415.406.1434 / dhoebeke@jhsf.org

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Why a will or living trust isn’t enough. Although a valid will or living trust is essential to long-term planning, it doesn't deal with one of the most important issues …

Income Taxes and Charitable Giving For 2017 – What You Thought You Knew

1. The only way to receive a tax benefit from a charitable gift is to itemize deductions.

FALSE. Although itemized deductions are the most common way of receiving a tax benefit from a charitable gift, other gifts, taken from the income section of the tax return, can provide benefits as well. The benefit comes from lowering your adjusted gross income (AGI), line 37 on form 1040. The AGI may be the most important line on your tax return. Not only is it the baseline for the normal computation of tax, but it is also used, with some modifications, to determine: contribution limits to retirement plans; whether some of your social security benefits will be taxed; whether you will owe the alternative minimum tax; and whether you will owe a surcharge of 3.8 percent on net investment income.

Charitable solution. In 2017, there are at least two options.

First, give appreciated stock. This gift completely eliminates tax due on the appreciated value of the stock and eliminates the need to show income on line 13.

Second, if you have tax-exempt income, replace it with tax-free income, using a charitable gift annuity. Unlike tax-exempt income, which is used to compute some tax liability, tax-free income never appears on your tax return for any purpose.

2. There is no benefit from giving IRA assets to charity during lifetime.

FALSE. On December 18, 2015, Congress made permanent the opportunity to make direct gifts to charities from an IRA (also called a charitable IRA rollover).

There are a few things you should know:

First, the benefit is only available to individuals who are over 70½ and may be used to fulfill one’s required minimum distribution. The maximum gift limit is $100,000.

Second, in order to work, the distribution must be made directly to a charity.

Third, the benefit of the direct gift to charity is a reduction on line 15 of your 1040 form. Therefore, you may not double-dip by taking a charitable deduction.

3. The top tax rate for dividends and long-term capital gains taxes is 20 percent.

FALSE. Capital gains tax liability became more complex in 2013. Even though the top rate is listed at 20 percent, it can actually be significantly higher. The computation of the alternative minimum tax (AMT) puts some taxpayers into what is known as “the phase out zone,” where some deductions are reduced in value. For these taxpayers, the effective long-term capital gains rate may be as high as 22 percent. The surcharge of 3.8 percent on net investment income may apply.

Charitable solution. Gifts of appreciated assets, prior to their sale, yield an income tax charitable deduction for the current fair market value of the asset and completely eliminate long-term capital gains tax liability.

4. Tax-exempt income (from municipal bonds, for example) is never subject to income tax.

FALSE. Income reported on line 8(b) is excluded when determining one’s adjusted gross income. However, if you have Social Security income, tax-exempt income is included in determining whether you owe tax on Social Security income.

Charitable solution. A charitable gift annuity provides annual annuity payments to the donor, a portion of which is tax free. The tax-free portion is never included in any tax calculation.

5. If your standard deduction is greater than the amount of your itemized deductions, you should always take the standard deduction.

FALSE. You should run your taxes using both the standard and itemized deductions. Although the standard deduction will be better using standard tax calculations, the preserved itemized deductions may actually lower the AMT.

Charitable solution. Unlike some itemized deductions, charitable gifts are deductible under both standard tax and AMT calculations. Therefore, even where other deductions are not helpful under the AMT, charitable deductions may continue to reduce your tax liability.

6. Itemized deductions are only available for the year in which the deduction occurred.

FALSE. Most, but not all, Schedule A deductions are “use it or lose it.” In other words, they are only deductible in the year they are incurred.

Charitable solution. Charitable gifts that exceed thresholds related to adjusted gross income may be carried forward for an additional five years and reported as itemized deductions.

7. You cannot deduct personal expenses related to charitable giving.

FALSE. It is true that you may not deduct the value of your time. However…

Charitable solution. Expenses directly related to performing charitable services are often deductible. For example, driving expenses incurred while volunteering may currently be taken as an itemized charitable deduction at 14 cents per mile.

8. You cannot take a charitable deduction for assets you continue to use.

FALSE. There are exceptions to the general rule that you must actually part with assets to get a deduction.

Charitable solutions:

  • You may give your home (and some other kinds of real estate) to charity with a reserved life estate. You receive an immediate income tax charitable deduction for a portion of the property's value and continue to live there for the rest of your life.
  • You may take out a charitable gift annuity that provides an immediate income tax deduction and provides annuity payments to you (and your spouse/partner) for life.
  • You may establish a charitable remainder trust that provides an immediate income tax deduction, and provides income either at a set or variable rate for either a term of years or for your life (and that of others).

For more information about these charitable planning options and others that are certain to work both this year and beyond, contact Daniel Hoebeke, senior development & gift planning officer, at 416.406.1434 or dhoebeke@jhsf.org.

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Lifestyle & Legacy Planning

Every generation produces visionaries. These are individuals who, as in the Talmudic story of the carob tree,* plant for the future with their legacy gifts. These gifts enable the Jewish Home to continue providing care for our elders – for generations to come.

The Carob Tree Circle is the Home's way of recognizing those whose vision includes legacy gifts by way of wills, trusts, and other estate planning gifts. Our appreciation goes to those of blessed memory whose work on this earth is completed, as well as to those who have told us that they have included the Jewish Home in their long-term legacy plans.

* One day, Honi the Circle Maker was walking on the road and saw a man planting a carob tree. Honi asked the man, "How long will it take for this tree to bear fruit?"

The man replied, "Seventy years."

Honi then asked the man, "And do you think you will live another seventy years and eat the fruit of this tree?"

The man answered, "Perhaps not. However, when I was born into this world, I found many carob trees planted by my father and grandfather. Just as they planted trees for me, I am planting trees for my children and grandchildren so they will be able to eat the fruit of these trees."

— a Talmud Tale told by Peninnah Schram