Charitable contributions not only make a real difference, they can also be a great way to reduce tax burdens. How to plan your gifts right
by Walter Daszkowski
First considerations
As with everything in tax law, it’s important to comply with the Internal Revenue Code and Treasury Regulations. These rules can be complex, so when in doubt, consult a tax professional about your personal giving strategy. Contributions are deductible in the year made, must be made by December 31st in order to apply to that year, and only contributions to qualified charitable organizations are deductible. If you are not sure if an organization is qualified, search online using the IRS Exempt Organization Check. A contribution can include cash, stocks and other property. In order to deduct a charitable contribution on your tax return, you must itemize your deductions using Schedule A on Federal Form 1040.
Property and other gifts
Making a charitable contribution of property that has appreciated in value, like stocks, bonds, or mutual funds, can result in a double benefit. Not only can you deduct the fair value of the property if owned for at least one year, you can avoid paying a capital gains tax (normally, appreciated property is subject to capital gains tax at disposition). You can sell your stock and then donate what’s left over after you pay capital gains tax, or you can donate securities directly. However, by donating securities directly to a charity, you will qualify for a larger tax deduction and the charity gets a greater contribution. Keep in mind that overall charitable deduction is limited to 30% of your adjusted gross income, instead of the usual 50% limit for donations of cash and short-term property made to public charities— though you can carry forward the unused deductions for five years.
Bequests
A taxpayer who makes a charitable bequest of appreciated property can deduct the entire value of the property when computing federal estate taxes. Many, not surprisingly, are interested in charitable planning, which can be as simple as an outright gift or bequest of funds, or property to a public charity. However, other taxpayers may want to exercise more control over the manner and timing in which funds and/or property are used by charities. In this instance, a private foundation may be a useful tool that can be integrated with a client’s gift and estate plan.
Daszkowski, Tompkins, Weg &
Carbonella CPA P.C.
1303 Clove Road, Staten Island
718.981.9600 / wdcpa.com