How to Stretch Your Donation Dollars

BOSTON ( TheStreet) -- Being charitable and tax savvy don't have to be mutually exclusive.

As the end of the year approaches, and thoughts of goodwill to all emerge from all that holiday cheer, being philanthropic can be a win-win situation, according to Rande Spiegelman, vice president of financial planning for Charles Schwab's ( SCHW ) Center for Financial Research. Here are some tips for those looking to give.

Give soon: If you act before the end of the year, you can give up to $13,000 each to as many individuals as you wish this year and pay no gift tax. Spouses can "split" gifts for a total of $26,000 per beneficiary, per year. Gifts beyond that are taxable, but only to the extent they exceed $1 million over a donor's life.

"The lucky recipient of the gift owes no gift or income tax, and doesn't even have to report the gift unless it comes from outside the United States," Spiegelman says.

Pay someone's education or medical bills: You can also make unlimited payments directly to medical providers or educational institutions on behalf of others without incurring a taxable gift or dipping into your $1 million lifetime gift tax exemption.

"It can be anybody's education or medical expenses, says Monte Garpestad, a financial consultant for Schwab. "If you have a grandson that you want to pay educational expenses for you can go ahead and do that. Or if a family has a medical emergency, that sort of thing, you can go ahead and pay directly for that too."

Shift income to tax-advantaged children: Consider gifting appreciated securities and stocks whose dividends are taxed at low long-term capital gains rates to children, at least to the extent that the "kiddie tax" will not apply. Up to a limit, even younger kids will pay tax at their own rate--likely 0% (through 2010, expiring in 2011 under current law). Kids over the age of 18 (or 24 if they are a full-time student relying on you for more than half of their support) aren't subject to the tax at all.

Donate from your IRA: If you are at least 70½ years of age, you can donate up to $100,000 from your IRA directly to charity income-tax-free for 2009. For the charity-minded, that could be more sensible than taking a taxable distribution and deduction.

Donate appreciated securities, instead of cash, to a charity: If you sell your appreciated stock first and then give the cash, you'll pay the 15% capital gains tax on the gain and state taxes may also apply. But if you donate the stock to a charity, there's no capital gains tax. The charity gets the full donation and you get to claim a tax deduction. On the other hand, if you're holding securities at a loss, sell them first and then donate the cash. That way, you can claim the capital loss on your tax return.

According to Garpestad there has been increase in the practice of philanthropists establishing a charitable fund and offloading much of the work to a financial services firm.

"You are seeing more and more people with private foundations take that approach because of the expenses of maintaining those foundations," he says. "A lot of them are switching to a charitable fund where someone else is taking care of all the administrations and distributions."

-- Reported by Joe Mont in Boston

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