Transcripts

Kevin McCormally's Tax Tips-Giving & Getting Back

SUSIE GHARIB: As we head toward the end of the year, we're thinking ahead to tax season. Here with part three of his year-end tips is our tax guru, Kevin McCormally. He's editorial director at Kiplinger's Personal Finance. Tonight he takes a look at making the most of your charitable donations.

KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Americans are a generous people. The latest IRS data show that taxpayers who itemize deductions donated about $200 billion to charities in 2005. Who knows how much more the 70 percent of taxpayers who don't itemize gave away. If you're feeling generous this holiday season, let me give you one piece of advice: put away your checkbook. No, I'm not suggesting you play Scrooge. I'm suggesting you take advantage of a rule that lets you leverage your generosity. It's a way to help you give more to others, while helping yourself with the tax man.

I'm talking about donating appreciated property rather than cash. As long as you've owned the asset for more than a year -- whether its stocks or bonds, mutual fund shares or real estate -- you can deduct the full market value of the property. And neither you nor the charity has to pay tax on the appreciation that accrued while you owned it. Let's say the 100 shares of Google you bought in 2004 for $85 a share are now worth $640 a share. And let's say you plan to make a $25,000 charitable contribution.

If you give cash, you can deduct the $25,000 and that will save you about $8,000 in the 28 percent tax bracket. But look what happens if you donate $25,000 worth of Google shares instead. The charity still gets $25,000 and you still get to deduct $25,000. But you also get to avoid the tax bill on nearly $22,000 of gain on the donated shares. That will save you an extra $3,300 in capital gains taxes. That's a way to be generous to yourself and there's nothing wrong with that. I'm Kevin McCormally.