Boost Charitable Gifts and Lower Your Tax Bill
For the charitably inclined, the end of the year often brings an outpouring of opportunities to make charitable donations. Whether it's a solicitation from your alma mater or a request from your church, writing a check is the easiest way to donate. But there are a number of other ways you can help your favorite charity and benefit your own tax situation as well.
Give Appreciated
Assets
While
a check may be the easiest, non-cash gifts can give a charity more and cost you
less. The next time you plan to make a sizable donation to your favorite
charity, review your portfolio to see if there are any securities that have
appreciated in value that you could donate instead. Giving stock instead of cash
is an excellent way for you to save on taxes while benefiting your charity of
choice. Under current law, when you donate appreciated property held longer than
one year, you can write off the full fair market value of your donation, plus
you don’t owe any capital gains tax on the profit you would have realized if
you sold the asset.
Donate
Property
Many
charities are making it easier for you to donate property you no longer need.
For example, more and more organizations are willing to make all the
arrangements for donating an old car, including transferring the title and, if
necessary, towing the vehicle away. Whether you donate an old car, used clothes,
or worn furniture, your tax deduction is equal to the donated item's fair market
value -- meaning what you would get if you currently sold the item outright. If
the value of your gift is $250 or more, however, you must obtain a written
acknowledgment that includes a complete description of the donated property to
verify the contribution for tax purposes. In addition, if the value of your
property donations exceeds $500, you must report your donations on Form 8283.
You'll need a professional appraisal as well if the value of your non-cash
donation exceeds $5,000.
Special
rules apply when you donate tangible personal property, such as art. Tax law
specifies that you qualify for a full deduction for the fair market value of the
property only if the items are used in the course of the charity's charitable
function. For example, donating a valuable painting to an art museum would
qualify you to deduct the gift's full market value. However, if you were to
donate the same painting to a social services agency, your deduction may be
limited to your basis in the property -- that is, what you paid for it -- rather
than its appreciated value. To substantiate your deduction, get a confirmation
letter from a charity that will use your gift in connection with its main
activity or purpose.
Set
Up Charitable Trusts
A
charitable trust can be a valuable tool for people planning substantial
donations. In the case of a charitable remainder trust, you donate (on an
irrevocable basis) cash or property to the trust and you, a family member, or
other beneficiaries receive income from the trust for a set period of time, or
for as long as you live. At the end of that time period, the property passes to
the charity. When you establish a charitable remainder trust, you receive a
current deduction for the present value of the gift that the charity will
receive in the future and you receive a continuing stream of income from your
property. However, since the Taxpayer Relief Act of 1997 tightened regulations
concerning charitable remainder trusts, you might want to consult a Tax
Professional before establishing one.
A
charitable lead trust is the opposite of a charitable remainder trust. You
donate cash or property to a trust and the charity gets the income while you're
alive. Then, at your death, the assets revert to your estate. In the meantime,
you receive an up-front deduction for the value of the income stream that will
go to the charity.
The
more you make Uncle Sam a partner in your generosity, the more generous you can
afford to be. If you're planning to make a sizable gift to a charity, consult
with a tax professional for advice on how to make the most of your donation for
both you and the charity.