Plan your donating with taxes in mind
With the Dec. 31 donation deadline fast approaching, you better hurry up if you plan on making a charitable gift this year and want to claim it on your 2014 tax return.
Here we review basic rules to maximize the tax benefits associated with your charitable giving:
You can claim a federal non-refundable tax credit of 15% for the first $200 of annual charitable donations. The federal credit rate jumps to 29% for cumulative donations above $200. When provincial credits are added to the federal ones, your total credit can be as high as 50%, depending on your province of residence.
If you are considered to be a "firsttime donor," you can take advantage of the temporary First-Time Donor's Super Credit (FDSC), introduced last year, which provides an additional 25% non-refundable tax credit on up to $1,000 of donations. A firsttime donor is someone who hasn't claimed a donation credit after 2007. If you're married or living common law, neither you nor your spouse qualify if either of you has made a donation after 2007. Only cash donations will qualify for the FDSC as opposed to donations "in-kind." The FDSC can only be claimed once, in any one of the tax years from 2013 until 2017, inclusive.
The FDSC could be particularly helpful to recent graduates who are starting their first jobs and may have never claimed a donation credit in prior years' tax returns since the combination of the basic personal credit, tuition, education and textbook credits were sufficient to reduce their tax payable to zero while in school.
Consider donating appreciated publicly traded shares or mutual funds "in-kind" to charity. Not only will you get a donation receipt for the fair market value of the securities being donated, you won't have to pay any tax on the accrued capital gains.
I recall a client, a senior executive at a major Canadian corporation who had donated $100,000 to charity by way of putting the donation amount on her credit card "to get the points." When I told her that she could have saved nearly $15,000 in tax by donating company stock instead, she contacted the charity, had them reverse the credit-card donation, and she made the donation "in kind" instead.
Also, if you're an employee who has received stock options, you can get a similar tax break and pay no tax on the stock-option benefit by choosing to donate the proceeds of option exercise to charity within 30 days of exercise.
Lastly, while not often discussed, you also have the ability of donating any securities with an accrued loss to charity. You will get a receipt for the fair market value of the securities donated and be able to claim the capital loss which can be used to offset other capital gains realized in 2014 or carried back and used against any gains you may have realized in 2011, 2012 or 2013. Any unused capital loss may be carried forward indefinitely to a future year.