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No RMD relief for 2008

2008 Year-end Money Moves: Giving

The Year-end Money Moves series is back, this time with tips on giving by by Dec. 31.

Apologies for the fits-and-starts appearances this year of the five-part presentation. It's been a crazy winding down of 2008 and we've still got a couple of weeks to go!

Part 1 of our Dec. 31 deadline series took a look at tax moves to make and debuted Dec. 2. Part 2, investment moves to make now, showed up on eight days later. And year-end retirement steps, Part 3 of the series, appeared on the ol' blog on Dec. 11.

Year-end money moves_giving Today's installment, Part 4: Giving, examines how helping out others can also be a perfect financial and tax gift to yourself. There are lots of opportunities here, so let's get started!

Know the ground rules
Uncle Sam encourages a charitable spirit, as long as you follow the tax agency's guidelines. First, you must itemize to deduct any donations. If you claim the standard deduction, which most taxpayers do, your generosity will help out your charity of choice, won't help reduce your tax liability.

Itemizing taxpayers also must be sure to give to an organization that has been vetted by the tax agency. Check Publication 78 to ensure the nonprofit meets IRS standards.

You also need to make sure you document your gifts. The IRS now demands that you have a canceled check, bank record or an official receipt from the charity to verify your gift, regardless of how large or small it is. You don't have to send this info to the IRS with your return, but if the IRS asks and you can't produce the document, your gift could be disallowed.

And, in keeping with this post's theme, remember that timing is everything. To take advantage of a donation on your coming tax return, you need to make the gift by Dec. 31.

Household goods can be good tax breaks
Donating household goods and clothing that you no longer need also can help out your bottom tax line and others.

Unfortunately, some folks were giving away crap under the guise of helping out others. Yes, I said it: Crap. And the only ones they were helping were themselves, by making inflated tax deduction claims regarding the worth of the items.

So lawmakers decided to make it a requirement that any donated clothing or household goods be in good or better shape. If they're not, then the IRS can automatically disallow your deduction.

The key here is to use the true fair market value of your gift. There are several software programs that can help you figure this out, as well as IRS Publication 561, Determining the Value of Donated Property. You also might check out eBay to see what the going price is for an item you're giving to your local Goodwill or Salvation Army branch.

So be an ethical giver. Don't try to pawn off your crap on groups trying to help out others. No one wants your raggedly socks or slacks that are so worn you can literally see through the seat. If your goods are that awful, be honest and drop them in your trash can. Then send a check to the charity instead.

The payoff of appreciated property
If in rebalancing your portfolio after this difficult stock market year, you find an asset no longer fits your investment strategy, it could be a perfect charitable gift.

As long as the asset has increased in value (admittedly a challenge in 2008, but possible if you've had the asset for a while) and you've owned it for more than a year, you can give it to a nonprofit and deduct its full fair market value. The charity then can use it and you avoid any capital gains tax on the asset's appreciation.

To get the maximum tax benefit here, make sure you've held the asset for the full 12 months plus one day; if you give away property held one year or less, you only are allowed to claim a deduction on the price you paid for it.

The value of vehicular donations
Ready to dump that jalopy you've been puttering around in? Think about giving it to a charity instead. The donation could be more valuable to you as a tax write-off than what you'd get for it or its parts.

But in giving your vehicle away, you must make sure you follow the tougher rules that the IRS put in place several years ago. Unfortunately, some folks overvalued their auto donations (just like those ratty clothes they also gave away), so now the IRS has more complicated guidelines to assess the proper donation claim in these cases.

Your actual automotive gift tax break depends not only on the actual, fair market value of your vehicular donation, but also upon how the charity uses the car (or van or truck or motorcycle or even boat).

You can find details on the rules in IRS Publication 4303, A Donor's Guide to Vehicle Donations, as well as in this story.

A special opportunity for older donors
If you are 70½ or older, you can have money from your IRA sent directly to your favorite charity. The option is applies to both traditional IRA and Roth accounts, but it's probably more beneficial to traditional IRA account holders, since much of the money in these accounts is eventually taxable.

When it goes straight to a charity, usually in the form or the account holder's required minimum distribution, the contributed cash is not counted as taxable income to the IRA owner.

The big drawback here is that these direct gifts from an IRA are not deductible. That, however, might not be that much of a disincentive, since many older taxpayers (like most taxpayers of all ages) do not itemize.

So far, this direct from IRA to charity strategy is still effective for 2008. However,  a new law  (as soon as Dubya signs the legislation) will waive the RMD rule in 2009 and that could cost charities some money next year.

As for 2008, there's still a possibility that the Treasury Department will make some changes before the year ends regarding 2008 RMDs.

Keeping it in the family
Some taxpayers also will want to look at giving financial gifts to family (and friends) this holiday season, or at other times of the year.

In 2008, you can give up to $12,000 (or $24,000 for married couples) to as many individuals as you like or can afford -- and if you've got a lot of $12K chunks to pass out, let's talk! These gifts have no tax ramifications for either the giver or the recipient.

And remember that this gift doesn't have to be cash. You can give up to $12,000 worth of appreciated securities to someone.

This might be something to think about if, for example, your retired parents' income is low enough to allow them to take advantage of the zero capital gains rate. Give them appreciated stock worth $12,000 by Dec. 31 and they can sell the asset any time before by Dec. 31, 2010, and not owe any capital gains taxes.


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