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.com. This 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.