Incentives to Philanthropy

Asian & Pacific Islander Wellness Center owes its reputation and indeed its existence to the generosity of its friends in the community. So that it may serve its constituents in our society with still greater distinction and withstand the mounting economic pressures on nonprofit agencies, A&PI Wellness Center has initiated giving strategies that make contributing easier and hassle free.

You may be able to help A&PI Wellness Center more than you think – by choosing carefully your mode of giving to take full advantage of the tax savings that Congress meant you to have.

Anyone who has ever filled out Form 1040 knows that the most agreeable part of the task is adding up one’s charitable contributions and deducting them from taxable income. Any outright gift to A&PI Wellness Center is deductible for federal income tax purposes within stated limits. The deduction is made from the top of your income—the part that would be taxed most heavily.

That is Uncle Sam’s basic incentive and reward to those who voluntarily support our philanthropic institutions. There are other tax benefits, perhaps less obvious, to be derived from certain types of giving. The greater your tax savings, the more you will find yourself able to contribute.

Here are ten tax-saving ways to make a distinguished gift to Asian & Pacific Islander Wellness Center.

1. WRITE A CHECK, make a pledge, charge our credit card, Use Electronic Funds
   The simplest way to make a gift to A&PI Wellness Center is to write a check. Check gifts by an individual to A&PI Wellness Center (as to any qualifying charitable organization) are tax-deductible up to 50% of the donor’s adjusted gross income for the year. If your contributions during a year exceed that limit, moreover, you can carry forward the excess and deduct it in the subsequent five years if your charitable deductions do not go over the ceiling in any one year.
   
   Your tax savings can be substantial. Suppose your taxable income a $38,200 and you file a joint return. Under the tax rates the top $3,000 of your income is in the 42% tax bracket. Hence, it costs you $1,260 in tax. If you gave this $3,000 to A&PI Wellness Center, you would be spared that $ 1,260 in tax. Your $3,000 gift would leave you with only $1,740 less than you would have had if you had not made the gift.
   
   The five-year carryover works like this: Assume your adjusted gross income is $20,000 end you find yourself in a position to give $1,000 this year to A&PI Wellness Center. You can deduct $10,000 of the gift—50% of your adjusted gross income—on your tax return for this year, and then deduct the remaining $1,000 within the next five years. If your taxable income is the same next year as this and your qualified charitable gifts in that year total no more than $9,000, you can deduct the entire $1,000 excess next year.
   
   Your gift to A&PI Wellness Center cannot possibly cost you as much as the agency will receive from it for its programs.
   
   
2. Give Appreciated Securities
   At a stockholders meeting of a large corporation, the president was asked what sounded like a loaded question: Why had he reduced his holdings of the company’s stock? He replied that he had given away 369 shares—mostly to a nonprofit agency, the rest to a hospital. The answer drew spontaneous applause. Why did he give securities instead of money? Chances are that the stock, which had been held long-term (i.e., more than nine months twelve months and thereafter was worth it good deal more than he had originally paid for it.) Had he sold the stock in order to finance a cash gift, he would have paid taxes of up to 40% (capital gains tax and tax on tax preferences) on the increase in the stock’s value. Thus, he would have had less to give—and less to deduct for federal income tax purposes.
   
   An outright gift of long-term securities to A&PI Wellness Center is free of capital gains tax no matter how much their value may have risen since you acquired them. Yet you can deduct the full current market value of the gift from your taxable income, up to 30% of your adjusted gross income with a five-year carry-forward any excess over 30%.
   
   
3. Sell Appreciated Property to A&PI Wellness Center at Cost
   You CAN aid A&PI Wellness Center by selling at your cost, securities or real estate that you have owned for more than nine months and which have increased in value. By doing so, you contribute to the A&PI Wellness Center the appreciation. This is called a “bargain sale.”
   
   The transaction is part sale and part gift. You may claim a deduction equal to the amount of the appreciation; but you must pay a capital gain tax on that part of the appreciation that is considered attributable to the sale, rather than to the gift.
   
   An example shows how this tax is computed:
   Suppose you acquired property for $5,000 that is now worth $25,000. You sell it to A&PI Wellness Center for your $5,000 cost thereby making a charitable gift of $20,000. To determine your taxable gain, allocate your cost ($5,000) proportionally between the $5,000 sale and the $20,000 gift. Since 20% of the property is regarded as having been sold ($5,000 of $25,000) and the other 80% contributed, 20% of your cost ($1,000 of $25,000) is allocable to the sale. You pay a capital gains tax on the $4,000 balance. More than offsetting this, however, is your deduction of the gift. If you are in the 50% income tax bracket and your capital gains are taxed at 25%, your tax on the $4,000 gain will be $1,000 while your charitable deduction of $20,000 will save you $10,000. So your net tax saving will be $9,000.
   
   If you are considering supporting A&PI Wellness Center through a transfer of appreciated securities and can sell separate shares, there are two ways of going about it. You can bargain-sell all your shares to A&PI Wellness Center, or you can sell enough shares in the market to repay your total cost, and then give the rest of the shares to A&PI Wellness Center outright. The tax consequences should be about the same either way.
   
   If you are contemplating making a gift to A&PI Wellness Center involving a parcel of land, which cannot be subdivided for sale, the bargain sale may be an advantageous way of combining a gift with a sale.
   
   
4. Give Property
   In computing the charitable deduction for a gift of property held for more than twelve months, you begin by getting a written report of its fair market value from an independent appraiser.
   
   Generally, if the gift is in the form of real estate or of tangible personal property directly usable by A&PI Wellness Center in its educational or public service functions, the full fair market value is deductible, up to 30% of the donor’s adjusted gross income. (The gift is also eligible for the optional 50% limit previously described in relation to appreciated securities.)
   
   If a gift of tangible personal property is to be sold by A&PI Wellness Center or not used in connection with its work, the tax deduction equals the fair market value reduced by one-half of any appreciation. In this case, the 50% limit applies.
   
   Less favorable deductions are allowed when persons who created them or received them as lifetime gifts from the artist or authors contribute works of art and literary compositions.
   
   All outright gifts of property to A&PI Wellness Center are free of any capital gains tax, and if their deductible value exceeds the annual limits, the excess can be carried over the for next five years.
   
   If you find yourself with real estate, art objects, antiques, jewelry or anything else of value for which you have no particular use, you may be able to increase spend able income by giving such articles to A&PI Wellness Center.
   
   
5. Maximize Tax Savings by Properly Timing Your Gift
   If you expect to be in a higher bracket this year than next, you will save taxes by making your gift this year. Conversely, if you expect to be in a higher bracket next year than this you will save taxes by making your gift next year.
   
   For example, you know your tax bracket for the current year is 50% and you estimate that next year it will be 30%. By making a $5,000 gift to A&PI Wellness Center this year, you save $2,500 in income taxes. If you wait until next year, you will save only $1,500.
   
   Many factors affect income levels from year to year. For example, if you expect to retire soon, it may be advantageous for you to make a major tax-deductible gift before you do so, since you may be in a lower tax bracket after retirement. Similarly, if you are enjoying an unusually successful year in business, a charitable deduction may save you more in tax this year than next.
   
   
6. Give Life Insurance
   In 1955, a donor took out two life insurance policies. As the years passed, she found this protection no longer needed. She named a nonprofit agency as beneficiary. In 1987, the policies matured. They yielded about $300,000, with which agency created an endowment fund in her name. Every year income from this trust allows that agency to supplement the annual budget in areas of growth.
   
   Life insurance has long been a popular vehicle for making charitable contributions. In its simplest form, an individual can endow A&PI Wellness Center with an amount of money at his death, which because of economic considerations, he would not be able to contribute during his lifetime.
   
   Three methods of benefiting A&PI Wellness Center with life insurance are:
   a) Name A&PI Wellness Center as the beneficiary of the policy,
   b) Irrevocably transfer the ownership of the policy to A&PI Wellness Center and name the agency as beneficiary, and,
   c) Make a gift of a partial beneficial interest in a group life insurance policy to A&PI Wellness Center.
   
   It behooves a donor contemplating a gift of life insurance to A&PI Wellness Center to consult with his life insurance representative to make certain that his gift objectives are realized with the maximum tax advantages possible.
   
   
7. Make a Company Gift
   A partnership can make gifts to A&PI Wellness Center and each partner can in the year of gift, deduct his share thereof up to 30% or 50% of his adjusted gross income (depending on the nature of the gift), with the right to carryover any excess for five years.
   
   A corporation – unless its charter or bylaws or state law forbids its making contributions – can make and deduct such gifts up to 5%, of its net income before taxes; and contributions greater than 5% can be carried over into the succeeding five years.
   
   For example, a corporation with a net income of $10,000,000 might find itself in a position to give $700,000 to A&PI Wellness Center. Although it can deduct only $500,000 for this year, it can make the whole gift now and deduct the $200,000 excess over the next five years.
   
   Business gifts to the A&PI Wellness Center can take a variety of forms:
   • Cash
   • Securities
   • Inventory
   • Equipment or supplies which A&PI Wellness Center needs —given or sold at cost
   • Industrial real estate or other property
   • Business products can be contributed and either used by A&PI Wellness Center or sold by it to produce funds.
   
   However, the charitable deduction for a gift of inventory products is generally limited to cost. Amended provisions permit deduction of basis of inventory plus one-half of unrealized appreciation up to twice the basis, provided the property given is used “for the care of the ill, the needy or intents”.
   
   
8. Enter Into a Life Income Plan
   In 1997, a retired couple gave stock (valued at approximately $150,000) subject to payment of a life income for he and his wife. This was a first example of the life income plans, which many nonprofit agencies offer today.
   
   Life income plans can never take the place of outright giving in the A&PI Wellness Center development, but they save a particular purpose:
   
   To enable a person who is dependent on continuing income from substantial assets to give all or part of those assets to A&PI Wellness Center during his or her lifetime—a gift of such size as might otherwise be possible only in the donor ‘s Will.
   
   A&PI Wellness Center offers five life income plans—each suited to the interests of donors with different plans. Please contact the Development Office for detailed information regarding these plans and how they can benefit you.
• Annuity Trust: Pays a fixed dollar amount annually—a percentage of the market value of trust assets at the time of gift. Capital gains and principal as well as trust income can be drawn upon if necessary. Recommended for a donor who wants to know how many dollars he can expect each year.
• Standard Unitrust: Pays a variable amount annually—a stated percentage of the market value of the trust assets, valued yearly. Capital gains and principal as well as trust income can be drawn upon if necessary for a donor interested in potential growth and hedging against inflation.
  
• Income Unitrust: Pays a variable amount annually—up to a stated percentage of the market value of the trust assets, valued yearly. Only trust income can be drawn upon. Any income in excess of the specified percentage can be applied to making up any deficiencies in other years. Recommended for a donor interested mainly in a satisfactory income rate — particularly the holder of highly appreciated, low-yield investments on which the capital gains tax would be substantial if they were sold.
  
• Pooled Income Fund: Pays a variable amount—the donor’s proportionate share of the net income from a pooled investment fund. Capital gains are plowed back into the principal, which cannot be drawn upon. Recommended for a donor of moderate-sized “sets who want, the protection of diversified investments.
  
• Tax-Exempt Life Income Trust: Essentially the same as the Income Unitrust except that the assets are invested solely in tax-exempt bonds, and the income is therefore not subject to income tax. Best funded with cash of unappreciated securities, since any capital gains on the contributed assets would be taxed either when sold or as income is distributed.
  
  Recommended for a beneficiary in high income tax bracket.
  
A life income gift entitles the donor to a tax deduction for the year in which it is made. The amount of this deduction equals the value of the original contribution, minus the estimated sum of the prospective life income payments. This calculation is based on government tables, which take into account the ages and sexes of beneficiaries and the expressed rate of return.

In funding life income plans—other than the Tax-Exempt Life Income Trust, gifts of appreciated assets held more than twelve months, can be particularly advantageous to the donor. The deduction is based on the full market value at the time of the gift (minus the value of the reserved income interest) and the increase in value is not taxable. For federal income tax purposes, only the calculated value of a survivor’s life income (if any) is taxable. Under all of the plans except the Tax-Exempt Life income Trust, income payments, to beneficiaries are partly or wholly taxable.



9. Give Your Home, Retaining Life Tenancy
   You may give A&PI Wellness Center your home subject to your continuing use of the property for life or a term of years—and in so doing, earn an income tax deduction.
   
   In the year of the gift, you may deduct the value of A&PI Wellness Center remainder interest (i.e.. fair market value minus tour retained interest) as ascertained from actuarial tables prepared by the Internal Revenue Service.
   
   If the real estate is mortgaged, the value of the remainder interest is usually based on the fair market value minus the amount of indebtedness under the mortgage. Of course, your attorney should review the transaction A&PI Wellness Center planned gifts counsel will work closely with him in preparing the necessary documents.
   
   
10. Make a Bequest
    In writing a Will, your first concern is, of course, to provide for your family and others close to you. Then you can consider aiding such causes as Asian & Pacific Islander Wellness Center. Often these two purposes can be combined to the advantage of both.
    
    An outright bequest to A&PI Wellness Center is fully deductible for purposes of the federal estate tax and exempt from state inheritance taxes. While thus reducing or even eliminating the taxes on one’s estate, the bequest can establish a lasting memorial to the donor or someone he or she wishes to honor.

If you wish to help your family and A&PI Wellness Center through a single act, your Will can create a trust that will provide life income for your designated beneficiaries, with the assets passing to A&PI Wellness Center at their death, to be used as you may direct.



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