Eight ways to create your own good news

A gift to Cornell University by December 31 will not only enable you to make an investment in our mission but can also allow you to slash your federal tax obligation this year. If you itemize your deductions for federal tax purposes, the amount you save will depend on your marginal federal income-tax bracket.

Example: Joe and Donna T expect to have taxable income of about $250,000 in 2008, which puts them in the 33% federal tax bracket. They decide to make an unrestricted gift of $20,000 to support our operating budget this year.

Result: This gift saves Joe and Donna $6,600 in federal income tax ($20,000 x 33%). Note: They may be able to save state income tax as well.

This is definitely a piece of good news that comes from the new Emergency Economic Stabilization Act of 2008. The new law extends tax-free giving from IRAs for donors who qualify. Known as the Charitable IRA Rollover, this gift option was included with other amended tax provisions that support higher education as part of the Senate-passed tax bill (H.R. 6029) that was passed by the House of Representatives on October 3, 2008 as part of extensive financial bail-out legislation. Your might remember, the tax-free IRA giving option has a few limits.

Learn more about the charitable IRA rollover.

In most cases, if you give appreciated assets that you have held for more than one year, you can deduct the full fair-market value and avoid capital-gain tax.

Example: Karen B makes a gift to Cornell of stock worth $50,000 purchased seven years ago for $12,000. She is allowed a deduction for the stock's full $50,000 value, which saves her $16,500 in her 33% bracket. In addition, Karen avoids $5,700 in capital-gain tax that she would have owed had she sold the stock. Total savings: $22,200.

Learn more about gifts of publicly traded securities.

Have you already made the maximum deductible contributions to your qualified retirement plan? Did you know there is another way to increase your retirement security and reduce current income taxes at the same time?

One popular way to achieve these objectives is through the use of a charitable remainder unitrust. You can make contributions to a unitrust you establish at Cornell University with the stipulation that the trust make payments to you (or beneficiaries you designate) each year, based on the value of the assets in the trust. Payments can continue for life or for a specified period of time up to twenty years. When the payments stop, the remaining assets pass to Cornell.

You may tailor such a unitrust for your retirement by including special income-only and make-up provisions that allow annual payments to be made only to the extent the trust has "income" and for any difference to be made up in future years when the trust has excess income.

If the trustee invests for capital appreciation until you retire, the trust will grow substantially but will distribute no income until that point. If the trust is then invested for income, significant payments will be available to supplement your retirement income.

Charitable Remainder Trusts fact sheet

With the current low interest rates on traditional investments, you may find that this is a perfect time to consider creative charitable planning strategies that allow you to make a gift, generate a charitable deduction, and receive payments based on the value of your contribution.

Collectively these are called life-income gifts. There are various options available to generate income for life; one of the most popular and versatile is the charitable gift annuity. The amount of income from a gift annuity depends on the amount of the contribution and the age(s) of the beneficiary(ies).

More about charitable gift annuities.

If you have already funded a life-income gift with Cornell and find you no longer need the additional income, this may be an opportune time to give up that life-income interest and generate another charitable deduction. Reason: The value of an income interest goes up when the IRS discount rate is down, as it is currently.

For many of us, it has not been an easy year in the stock market. It is typical to fund a year-end gift with appreciated securities to avoid the tax on the gain, but the recent turbulence in the markets may have left you with some losses. You can use these poor performing investments to fund a gift to Cornell—but not directly.

With a two-pronged strategy, you can harvest your losses and make a gift to Cornell.

• 1. Sell the poor performing securities. The loss from the sale offsets other investment gains from this and prior years and any excess losses can offset ordinary income up to $3,000.
• 2. Give the proceeds of the sale to Cornell. There is a corresponding charitable tax deduction that further minimizes the impact of past losses and helps to rebalance your financial and charitable goals.

A special tax-law provision gives you a significant deduction for making a gift of your home to Cornell—yet allows you to continue living there for the rest of your life. You keep what is known as a "life estate" and transfer what is known as the "remainder interest" to us.

This is a potent planning strategy at any time; but, as with a gift of an income interest, it is even more valuable when the IRS discount rate is low.

Example: Dave and Sharon, both 72, are entitled to a deduction for 2008 of more than $214,000 for a gift of a remainder interest in their $500,000 home at the prevailing IRS 4.2% discount rate. In their 35% tax bracket, this saves them more than $75,000; and they are able to remain in their home for the rest of their lives.

Learn more