Gifts that keep giving

It’s Christmas time and the spirit of giving fills the frosty air, at least here in Manitoba, where we are surely in for a traditional, cold winter.

Cozy slippers are flying off the shelves and worn winter clothing is being gathered up for donations to the less fortunate. In fact, this is the best time of year for learning the true meaning of gifting. Making charitable donations to your community can help your community as well as gain you a generous tax credit and teach your family a lesson in tax literacy and strategic philanthropy.

Whether you give money to your favorite charity or transfer securities upon which you have accrued a capital gain, the resulting tax refund will increase your cash flow. That way, you can give even more next year.

You can calculate the tax effectiveness of your charitable giving this month using a free trial of the Knowledge Bureau’s Donations Savings Calculator. It will help you to understand the real dollar value of your donations in your province of residence.

Let’s take as an example a donation of $446, the average charitable donation in Canada according to data from Statistics Canada’s Canada Survey of Giving, Volunteering and Participating. Applying the calculator, we find the real dollar value of a $446 donation in Ontario is $138.89.

Those who attended religious services or meetings at least once a week gave more on average, $1,004 (Knowledge Bureau Report, Dec. 5).  So, if we take the $1,004 donation of the more religiously inclined, it results in tax savings of $362.99. In the case of higher-income earners who can donate more, a $5,000 gift would result in tax savings of $1,967.78.

If you give significantly, you can leverage this gift and reduce your tax withholdings using Form T1213. That way you increase your take home pay all year long.

Investors get a special bonus. When shares are transferred to your favorite charity as a donation, the real dollar value increases but the savings depends on your marginal tax rate and the size of your accrued capital gain. Consider this example: Charlie, who lives in Ontario, has 2012 taxable income of  $50,000. In December, Charlie donated shares worth $5,000 to his favourite charity. He had purchased the shares previously for $3,000.  In addition to the $1,967.78 tax savings from the value of the donation, Charlie saves an additional $311.50 in taxes, making the total savings on the donation $2,279.28. That’s truly a remarkable gift: one that keeps giving back.

Note that if you wish to donate shares upon which you have incurred a loss, best to actually sell them and then give the cash. That way, you can claim the loss against other capital gains in the current tax year, the prior three years, or indefinitely into the future.

It’s Your Money. Your Life. Consider the gift of charity this year, together with the gift of tax literacy. You will help those less fortunate and teach your children financial principals. In addition, the generous tax credit you’ll receive will extend your generosity next year. Happy holidays!

Evelyn Jacks is the best-selling author of Essential Tax Facts and Jacks on Tax, now available at www.knowledgebureau.comThis is also a great time to enrol in a certificate tax course. Call 1-866-953-4769 to enroll. Tuition fees qualify for a tax credit on the 2012 tax return.

Charitable giving counts

I like to donate to my favorite causes in December. It makes me feel great because it benefits others. The fact it lessens my tax liability is but an added benefit.

Charitable giving is a tax-efficient way to contribute to causes I believe in. And, as an investor, I can multiply the returns on my winnings, publicly traded securities in my non-registered investment accounts by transferring those shares directly to my favorite charity. That way it’s possible to avoid taxes on the accrued gains in those securities — and get a charitable donation receipt, too.

According to data from Statistics Canada’s Canada Survey of Giving, Volunteering and Participating, Canadians gave $10.6 billion to charities in 2010. Based on responses from more than 15,000 people, each donor gave an average amount of $446. Those who attended religious services or meetings at least once a week gave more: $1,004 on average.

Demographically, older people gave more. Those aged 75 and older made average donations of $725, compared to $431 for those aged 35 to 44. Geographically, people from British Columbia, Alberta and Saskatchewan donated the highest amounts, while those in Quebec and Newfoundland and Labrador gave the lowest average amounts.

According to the study, tax planning to get the charitable donation tax credit was most important to donors in Saskatchewan, Manitoba and Prince Edward Island.

So, now is a good time to do your tax planning and, in particular, to coordinate with your spouse regarding donations made at work and at the door. The charitable donation credit is two-tiered: when you calculate your charitable donation credit on your tax return, the maximum credit occurs when donations are more than $200 in the tax year. To get a better family tax break, make sure at least one of you exceeds the $200 threshold.

Calculating your tax credit can be somewhat complex, however. Try calculating the real dollar value of your donations using a free trial of the Knowledge Bureau’s Donations Savings Calculator. Then, file tax returns to the best benefit of the family as a whole. If your gifting exceeds $200, you’ll get a better tax break.

It’s Your Money.  Your Life. Give before yearend to make a difference to your community and on your 2012 tax return. You will also be able to reduce your quarterly tax instalment remittances in 2013, and possibly your withholding taxes at source. If you are gifting securities, do so in time for your transaction to clear before the Christmas holidays. Check with your investment advisor now.

Next time:  Understanding the real dollar value of your charitable donation.

Evelyn Jacks is the president of Knowledge Bureau and the best-selling author of Essential Tax Facts and Jacks on Tax. This is a great time to enroll in a certificate tax course; call 1-866-953-4769. Tuition fees qualify for a tax credit on your 2012 tax return.