Gifts that keep giving: plan gifts and donations for the coming year that will lower your tax liability

Black Enterprise, Dec, 1995 by Donna Hermans

One way to reduce estate taxes and income taxes simultaneously is to set up a charitable remainder trust. The assets in the charitable remainder trust transfer to the charity when you die. But for the rest of your life, the interest the trust earns is paid to you.

For example, if you deposit 100,000 to a charity trust and the gift is invested and earns 10% interest annually, the interest is paid to you, says Quan-soon. You can take a deduction on the $100,000, even though the gift does not transfer to the charity until after your death. At the same time, you will have reduced the total assets in your estate that will be taxed upon your death. Daniels notes that such trusts require extensive planning and are best suited for wealthier individuals.

It's a good idea to map out a strategy now so that you can balance your gift-giving throughout the year. "As a family unit, my wife, son and I have discussed what organizations we want to regularly make contributions to," Elliott says. Likewise, it's a good idea for you and your family to identify early in the year the groups that address social causes or issues dear to you. Then plan ahead and space contributions throughout the year.

Also, consider making periodic payments through automatic payroll deductions. Certain organizations, such as United Way, allow that.

As a business owner, Elliott has found a way to incorporate his gift-giving strategy into his business relationships. He often thanks clients who provide new business referrals by making a charitable contribution in their name. "It's important to give the person who made the referral some recognition and at the same time give to a worthy cause," Elliott says.

Finally, when planning your contributions, you also need to project your taxable income for the coming year. It may be more advantageous to make the contribution in a year in which you will be in a higher tax bracket, Coleman says. The key, in any case, is planning ahead so that your contributions also help fight your tax battle.