Donations can be good for all involved
POSTED: Tuesday, December 02, 2008
Giving to charity is one of the best tax-planning opportunities because you enjoy not only a sizeable tax deduction but also the satisfaction of doing good. Plus you can control the timing to maximize your tax benefits.
In determining your charitable-giving strategy, you need to consider what to give, as well as how to give it. Outright gifts of cash are the easiest. The key is to make sure you substantiate them.
To be deductible, cash donations under $250 must be supported by a canceled check, credit card receipt or written communication from the charity; cash donations of $250 or more must be substantiated by the charity.
Deductions for cash gifts can not exceed 50 percent of your adjusted gross income (AGI). This is a higher limit than applies to other types of donations. Charitable contributions disallowed due to the AGI limits can be carried forward for up to five years.
DESPITE the simplicity and high AGI limits for outright cash gifts, it may prove more beneficial to make outright gifts of other types of assets.
Gifts of property are a little more complicated, but they may provide more tax benefits when properly planned. Your deduction depends in part on the type of property donated.
Long-term capital gain property includes stocks and other securities you've held for more than one year.
It is one of the best charitable gifts because you can take a charitable deduction equal to the current fair market value and avoid paying tax on the long-term capital gain that you would have incurred if you had sold the property.
However, gifts of appreciated assets are subject to tighter deduction limits than contributions of cash. Contributions of appreciated long-term capital gains property are limited to 30 percent of your AGI (or 20 percent depending on the type of charitable recipient). This limitation can be increased to 50 percent if you elect to deduct the basis rather than the fair market value for most property
Ordinary income property includes stock held less than a year, inventory and property subject to depreciation recapture.
You can receive a deduction equal to only the lesser of the fair market value or your tax basis in the property. However, the higher AGI limit of 50 percent applies to ordinary income property.
THERE ARE a few other important donation rules to keep in mind as well. If you contribute your services to charity, you may deduct only your out-of-pocket expenses, not the fair market value of your services. Additionally, if you drive for charitable purposes, you may deduct 14 cents for each charitable mile driven.
If you donate a vehicle, you generally can deduct only the amount the charity receives when it sells the vehicle.
Finally, if you donate clothing or household goods, they must be in at least "good used condition" to be deductible.
WITH the end of the year approaching and the holidays upon us, a well-planned gift to a qualified charity can meet your charitable goals and give you a chance to be more personally involved with the charities close to your heart.
Nicole Borgman is a senior tax manager in the Honolulu office of Grant Thornton LLP. She can be reached at <a href="mailto:Nicole.Borgman@gt.com?subject=http://starbulletin.com/today">