It’s time for year-end tax planning

Special to the JournalNovember 8, 2016 

Where has 2016 gone? It’s hard to believe that November in upon us and we will soon be into the holiday season. The holiday season is an important time of the year for charitable giving as many individuals make gifts to their favorite charities during this time.

Hopefully you have heard about “Giving Tuesday.” It is the day after Cyber Monday, which follows Black Friday, the day after Thanksgiving.

I try to avoid setting foot in any retail establishment on Black Friday; however, many people look forward to the excitement of bargain hunting as the holiday shopping season begins.

“Giving Tuesday” is a day promoted by a growing number of nonprofits as the time after the flurry of shopping to remember our blessings and support nonprofits that we care about. There is a particular emphasis on online gifts and promotion through social media.

So, it really is time think about year-end tax planning and charitable giving. There is a relatively new charitable giving tool that some retirees can utilize to maximize their support of their favorite charities.

If you are 70 1/2 or older and have required minimum distributions (RMD’s) that you must take from your IRA, making a Qualified Charitable Distribution (QCD) from your IRA to your favorite charity is a tax-wise way to make a gift. A distribution of up to $100,000 may be made and the amount will count toward your RMD but will not be recognized as income on your tax return.

The distribution must come directly from your IRA custodian to the charity and your IRA custodian should have a form for this type of distribution readily available. We have a number of people who add to their scholarship or designated funds at the Community Foundation using this tool. Unfortunately, under current law, Donor Advised Funds do not qualify for a QCD.

Everyone should review charitable giving to date, how this compares to last year, and estimate the 2016 income and what tax bracket that puts you in.

Sometimes, additional charitable contributions will keep you from moving into that next tax bracket. We have many people who have a Donor Advised Fund at the Community Foundation who make a year-end gift to their charitable-giving account based on this type of year-end tax planning. Then they can immediately or at a later date make grants out of their fund to their favorite charities.

Also remember that some charities have Missouri State Tax Credit provisions. For example, Community Services League qualifies for the Food Pantry Tax Credit, where you can receive tax credits of 50 percent of your donation. A credit is much better than a deduction because you basically subtract the credit from your Missouri State Tax obligation.

Hope House qualifies for the Missouri Domestic Violence Tax Credit, which is a similar program. So be aware of these and similar tax credit programs that can help you minimize your tax liability and maximize the support you can provide to charities.

Get a head start on the holiday season and give some thought now to your plans for charitable giving in the last two months of 2016. Before we know it will be 2017. Where did 2016 go?

Phil Hanson is president and CEO of the Truman Heartland Community Foundation, which serves the Lee’s Summit area.

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