Charitable contributions provide the greatest flexibility for most people. This is because their timing is completely discretionary, as a rule. Just keep in mind that that gifts to charitable organizations are deductible when paid. Pledges don't count. They're deductible in the year that they're fulfilled, not in the year that they're made. But within those guidelines, donors have some flexibility.
One strategy is to accelerate payments by taking care of pledges to religious groups, schools and other charities this year, instead of next, as well as by donating before yearend the entire amount that you expect to give to your favorite charity next year.
The rules are straightforward for last-minute donations made with checks. Count checks as deductions for 2014 as long as the payments are put in mailboxes in sufficient time for letters to be postmarked by midnight Dec. 31. The IRS couldn't care less that the checks reach charities after 2014's close.
Credit card payments, whether for charitable donations, medical services, or business expenses qualify for 2014 deductions as soon as you authorize the charges. This holds true even if the credit card companies don't bill you until 2015.
You might even consider borrowing to accelerate the deduction. The tax savings may more than offset the interest expense of a short-term loan.
Checks and credit cards aren't the only game in town. Consider donating stocks, real estate, or other investments that you've owned for more than 12 months and are worth more than you paid for them. Here's the double break: Besides deducting their full market value, you also escape the long-term capital gains tax that would have fallen due had you sold the shares.
Your planning comes undone when you donate depreciated stocks or other investments, however. Instead, sell the property, donate the sales proceeds to the charitable organization and claim both the donation deduction and the capital loss.
Contributions of stock or other property are deductible for 2014 as long as the gifts are completed by Dec. 31. But in some situations, completing the legal paperwork takes time.
Get a jump on spring cleaning. Yet another way to lower taxes is to clean out and donate the contents of your closets, attic and garage now, rather than waiting until next spring. Just make sure to get a receipt showing the fair market value of what you donate. Otherwise, the tax takers may disallow all or part of your deduction. If the charity doesn't give a receipt, prepare your own detailed description listing clothing, furniture, and so forth.
When you claim a deduction of over $500 for non-cash gifts of property like clothing and toys, complete Form 8283, available at irs.gov, and submit it with your return.
The latest "charity"—the federal government. Here's a this break comes to you courtesy of the IRS itself. The instruction booklet that contains the tax forms offers this tax-saving tactic: "You can make a contribution (gift) to reduce the public debt. If you wish to do so, make a separate check payable to 'Bureau of the Public Debt.'" The IRS notes you can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A.
So far, the response has failed to noticeably dent the steadily increasing debt. The largest single contribution so far: $12 million from someone whose identity the Treasury won't reveal. The second largest is $1 million from the unspent funds of former President Reagan's second inaugural committee.
About the author:
Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator) and an attorney. More on this topic is available from "Julian Block's Year Round Tax Strategies", available at julianblocktaxexpert.com.
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.