Montana Tax Credit

How to take advantage of the Montana Tax Credit

40 Percent Montana Income Tax Credit for Planned Gifts Benefiting Permanent Endowments

An incredible tax incentive is available for Montana taxpayers through 2013 for gifts eventually benefiting permanent endowments of Rocky Mountain College and it is simple and easy to capture.

The credit is realized by individuals making “qualified” planned gifts to permanent endowments of Montana tax exempt nonprofit charitable organizations such as Rocky Mountain College. The credit for individuals is 40 percent of the allowed charitable deduction permitted on federal income tax returns in the year of gift and in an amount not to exceed the taxpayer’s Montana income tax due in the year of the gift. Tax credits that cannot be used cannot be carried forward, but ordinary charitable deductions producing those unused credits can be carried forward for future use.This can represent a substantial income tax saving on both state and federal income tax returns for taxpayers who itemize their deductions. The savings are greatest for those who itemize their deductions and pay taxes in higher brackets. The maximum allowed state tax credit is the lesser of $10,000 per taxpayer or the amount of Montana income tax liability in the year of gift. A husband and wife can each claim that maximum credit. Many taxpayers make gifts of such size that their entire state income tax liability for the year may be paid by the tax credit rather than by check or accumulated estimated tax payments.

If the gift is made by transferring appreciated securities held for more than one year by the donor the capital gains tax on the appreciation can be avoided as well on both the state and federal tax returns! This can save an additional 15 percent of the gain on the federal tax and at present 6.8 percent of the state tax on long term capital gains, totaling nearly 22 percent of the profit. That is hard won money.

The taxpayer in using appreciated stocks finds that next April 15th when taxes for the prior year are paid, has funds remaining in his checking account available for investment or discretionary spending rather than having to pay taxes. A couple gifting appreciated stock with a tax cost basis of $5,000 that creates a federal income tax deduction of $20,000, will realize a federal tax saving of $5,000 if in a 25 percent tax rate, or $7,000 in a 35 percent bracket, plus a federal capital gains tax saving of $2,250, and also a Montana tax credit of $8,000 and a state capital gains tax saving of $1,020, for total tax savings of $16,270 in the 25 percent tax bracket and $18,270 in the 35 percent tax bracket. His gift of $20,000 will have cost him only 3,730.00 at the lower tax rate and $1,730 at the higher percent.

If the stock paid a 2 percent annual dividend only $400 in annual fully taxable income would have been lost at the 25 percent rate; $140 after taxes at 35 percent. He will have $16,270 or $18,270 in cash saving in his bank account to take grandchildren to Disneyland or for any other purpose he may wish to use it for. Rocky Mountain College will have $20,000+ income earned for five years when the planned gift can be cancelled and the gift is transferred to an endowment account that will produce from $800 to $1,000 a year in scholarships that will make a lifetime of difference to the student receiving it. That is a gift that hopefully will produce increasing amounts through the investment of earnings in excess of the 4 percent to 5 percent paid out in scholarships as it compounds year after year, assuming successful performance of the invested gift proceeds. Even those beginning scholarship distributions after five years will produce a scholarship of from 49 percent to almost 55 percent.

It is not hard to see why taxpayers have been using this tax saving incentive to make gifts to local tax exempt institutions like Rocky Mountain College in increasing amounts since the legislation was adopted in 1997. Many financial advisers and tax preparers have not even suggested the use of this tax saving maneuver in building legacy type permanent endowment gifts to institutions to which many taxpayers have long given as much as their out of pocket gift costs for these gifts! It diminishes the future of Rocky Mountain College and the State of Montana not to do this gifting.

Call 406.657.1142 and talk to Rocky Mountain College’s experienced Director of Planned Giving, Obert Undem, who has been helping others do great things with their diverted tax dollars for years to change the lives of young people who need scholarships to realize their career dreams requiring college educations. There is no cost or obligation and all conversations are confidential.

To see a sample deferred payment gift annuity answers please click here.