As we approach the Holiday Season, our thoughts of giving usually rise. Whether it be for family and friends or for those in need, or causes that need support, gifting and the joy or appreciation that it brings can bring warmth to the heart and spirit to the soul of the giver. In the case of those in need or causes that need support, the gift may also add value to society at large. Let’s take a look at gifting to other than family and friends, towards charitable gifting.

Whether you are gifting on a regular basis or at will, you are going to want to be ‘taxwise’ in making your gift. With respect to recordkeeping, substantiation and other matters of charitable gifting there are different rules depending on:

  1. Amounts donated:

    • Under $75

    • Under $250.00

    • Over $250.00 but under $500.00

    • Over $500.00 but less than $5,000.00

    • Over $5,000.00

  2. Organization type contributed to:

    • Qualified charity

    • Foundation

  3. Character of gain of the asset contributed:

    • Long-term gain

    • Short-term gain

  4. Use to which the charity puts the asset to.

  5. Whether ‘benefit’ was received. 

You can donate your time to charity and get a deduction for your out of pocket expenses only, including charitable mileage – you cannot deduct your ‘hourly fee’ or other ‘compensation’ equivalent.

Amounts Donated 

A qualified organization must give you a written statement if you make a payment that is more than $75 and is partly a contribution and partly for goods or services. If you claim a deduction of at least $250, but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization or maintain certain payroll deduction records. If you claim a deduction over $500, but not over $5,000 for a noncash charitable contribution, you must have acknowledgment and written records including how you got the property, the approximate date you got the property and cost or other basis information. You will then complete IRS form 8283 (see IRS Publication 526 for more information) to supply that information with your tax return. If you claim a deduction of over $5,000 for a charitable contribution of one property item or a group of similar property items, you must have the same acknowledgment and written records however you, generally, must also obtain an appraisal.

Organization Type Contributed To

Generally, you can deduct your contributions of money or property that you make to, or for the use of, a qualified organization. You generally can deduct the fair market value of the property at the time of the contribution. Your deduction for charitable contributions is generally limited to 50% of your adjusted gross income, but in some cases 20% and 30% limits may apply on the type of property you give and the type of organization you give it to. Personal or Private Foundations have a 20% of AGI limitation.

Character of Gain of Asset Contributed

If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property or capital gain property. The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Generally, this rule limits the deduction to your basis in the property. Property is capital gain property if its sale at fair market value on the date of the contribution would have resulted in long-term capital gain. Capital gain property includes capital assets held more than 1 year. Generally you can use the fair market value of the gift. However, in certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value.

Use To Which the Charity Puts the Property To

The example I like to use for this is one where you buy a $5 painting in a garage sale. You take the painting to an art store to get it cleaned up and you discover it is a master painting worth $5,000,000. You decide to give the painting to your alma mater’s football department. The football department could not ‘use’ the painting in its non-profit activities so your charitable contribution is $5.00.  If instead, you contribute the painting to the Art Department and they use it in their ‘master artists study’ program in their degree program, you get a $5,000,000 deduction. Quite a difference.

Whether Benefit Was Received

The example here is the Holiday party at your local charity. You pay $250.00 for a dinner seat and the value of the dinner is $60.00. Your deduction is only $190.00. 

Be Tax Wise

If you are giving to charity, don’t give cash; consider giving appreciated property. You avoid the gain, and if done right, you get the full fair market value as a charitable contribution. If you are over 70 ½ and are considering a gift to charity, consider making it directly out of your IRA to the charity. This law expires at the end of the year. It gives you the advantage of making the gift to the charity without having it added to your income for tax purposes. Of course, you do not, then, get a deduction for the contribution. 

Have a fulfilling Holiday Season!

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