Two events happen in December that make us want to give...generously. 

The first is obvious.  The desire to lower our tax bill

The second has to do with the celebration of Christmas (and a pretty strong nudge from effective advertising)

In this article, I'll talk about how you can maximize the tax benefits of your giving.  It isn't as simple as you might think.

Choose what you give.

About the worst thing you can give away (from a tax perspective) is cash.  If you give away cash, you get to deduct the amount of cash you give away.

If on the other hand, you give away appreciated assets that you've held for more than one year, you get to deduct the Fair Market Value of the asset.  As an example, say you bought 10 Mutual Fund shares 5 years ago for $10 per share.  If you donate those shares to charity when the Fair Market Value is $15 per share you get a $150 deduction even though the shares only cost you $100.  The capital gains transfer to the charity which doesn't have to pay taxes on them.

Know how much you can deduct

Their are limits on how much you can deduct.  Your Adjusted Gross Income (AGI) controls how much you can deduct.

Generally speaking, the maximum you can deduct for all charitable contributions is 50% of your AGI.  However, the charitable organization must be considered a 50% organization...most of the charities you think of are 50% organizations.

However, if you donate capital gains property to a 50% organization then you are limited to 30% of AGI.

There are situations where you could be limited to 30% or 20% of AGI even if the gift is a cash gift.

Know who you are contributing to

In order to take a tax deduction, the receiving organization has to be a qualified 501(c)3 organization.  Beyond that, you'll want to be especially careful if you are donating a car.

If the charity resells the car then you can deduct the actual amount the charity receives for the vehicle when it is sold.

You can deduct the Fair Market Value of the car if the charity

• Uses the vehicle
• Makes a material improvement to the vehicle
• Donates or sells the vehicle to a needy individual at a discount, if the transfer supports the charity's purpose of providing transportation

Think about "grouping" your charitable contributions

If you're in a situation where your income is going to be higher this year, and therefore making charitable contributions more valuable, consider contributing a "large" amount to a Donor Advised Fund (DAF).  The basics of a DAF is that you contribute to the fund now, take the tax deduction now and then pay out the amounts to charity over time.

Don't forget the Pease Limitations

Your itemized deductions, including charitable deductions, are reduced as your AGI exceeds certain limits.  For 2014, your deductions are reduced if your income exceeds $254,200 (Single)/$305,050 (Married Filing Jointly)

There are a lot of things you can do to help charities.  And, the IRS is willing to help out.  To get the most help from the IRS make sure you understand the IRS rules or work with someone who does. 

Investors in the hunt for higher yields have to search far and wide and consider avenues they may not have investigated before. One investment type that may be worth a look is foreign bonds and foreign bond funds.(1)

Investing in foreign bonds can have a number of advantages; chief among them is the fact that the returns from foreign bonds have the potential to be higher than returns offered via U.S. Treasury securities. However, Treasury securities are guaranteed as to the timely payment of principal and interest, which cannot be guaranteed for many foreign bonds. What's more, the monetary and budget policies of many foreign nations are often not synchronized with those of the United States, which can help in achieving your portfolio diversification goals.(2)

There are many types of foreign bonds, both from government entities as well as corporations.

• Eurobonds -- A eurobond is issued and traded in a country other than the one in which its currency is denominated -- not always a European nation. Eurobonds give issuers the flexibility to choose the country in which to offer their bond according to that country's regulatory constraints. They are usually issued in more than one country and traded across international financial markets. But they are unsecured, leaving bondholders without the first claim to the issuer's assets in case of default.

• Global Bonds -- A global bond is issued in multiple markets in different currencies. By issuing global bonds, a government or corporation is able to attract funds from a wider set of investors and potentially reduce its cost of borrowing.

• Sovereign Bonds -- Issued by national governments, sovereign bonds are generally among the safest investments in most countries. Even if countries are not particularly creditworthy, their sovereign bonds are usually safer than their other domestic alternatives.

• Yankee Bonds -- Yankee bonds are U.S. dollar-denominated bonds issued by foreign governments and corporations and sold in the United States. American investors can purchase the securities of foreign issuers without being subject to price swings caused by variations in currency exchange rates. As a result, Yankee bond prices are influenced primarily by changes in U.S. interest rates and the financial condition of the issuer.

Investment Risks

As with all types of investments, there are a number of risks associated with foreign bonds.

• Currency risk -- Any time you hold a foreign currency, you are subject to currency risk, which is the potential for loss due to fluctuations in exchange rates. Currency risk can literally turn a profit on a foreign investment into a loss.

• Sovereign risk -- This is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. This risk is especially present in emerging markets, where governments are more likely to be unstable.(3)

• Inflation risk -- As inflation rises, bonds that have already been issued lose value in the secondary market. In an inflationary environment, bonds issued more recently are usually more attractive because they'll often have higher interest rates, as central banks such as the U.S. Federal Reserve and the European Central Bank often raise rates in response to inflation fears.

• Interest rate risk -- As interest rates rise, bond prices fall as investors are able to realize greater yields by buying newly issued debt that reflects the higher interest rate. 

• Liquidity risk -- As with many U.S. corporate bonds, it can be difficult to find a buyer for an international government or corporate bond.

Which foreign bonds or bond funds best complement your portfolio will depend on a number of factors, including your existing holdings and appetite for risk.

Source/Disclaimer:

(1) Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Investing in mutual funds involves risk, including loss of principal.

(2) Diversification does not ensure a profit or protect against a loss.

(3) Emerging markets are generally more volatile than the markets of more developed foreign nations, and therefore you should consider this increased market risk carefully before investing. Investors in international securities may be subject to higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities. Returns are in U.S. dollars and reflect effects of currency fluctuations.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

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