Charitable Giving of Appreciated Stock: Good for Your Heart and Your 1040!
An economic downturn may not seem like the best time to increase charitable giving, but at the same time, the need for funding at many nonprofits is especially acute as a result of the current economy. In addition to supporting a worthy cause, you or your business can help lower your tax bill through cash donations, as well as contributions in the form of unused inventory or sponsorship.
Choosing an Organization
When it comes to tax deductions for charitable giving, the rules are complicated. As you begin to formulate a giving strategy, be sure that the organizations you intend to support have been awarded tax-exempt status by the Federal government. In addition to not-for-profit organizations engaged in charitable activities, qualified groups include nonprofit schools and hospitals, most churches and religious organizations, veterans’ groups, and public parks and recreational facilities. You cannot deduct contributions made to political or lobbying organizations, most foreign charities or sports clubs, or for-profit groups.
If you are not sure if a group you are interested in supporting is qualified to receive deductible contributions, you can search for the name of the organization on the IRS website at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check.
Gifts of Appreciated Property
When planned properly, gifts of appreciated property to charity may allow you to avoid the capital gains tax you would have owned when the asset what sold and may also allow you to receive an income tax deduction, usually worth the fair market value (FMV) of the property. Also, by removing that asset from your estate, you may reduce your potential estate tax burden.
Early tax planning can help you make the most of your charitable giving opportunities and allow you to take advantage of additional benefits. Be sure to consult your team of qualified tax, legal, and financial professionals for specific guidance.
There are other things to keep in mind when developing a giving strategy. To start, the IRS does not view all charitable contributions as tax deductible, and different rules apply. For personal deductions, the tax deduction may be limited depending on the type of property donated and the organization receiving the gift. Deductions for cash may not exceed 50% of adjusted gross income (AGI) for gifts to public charities and 30% of AGI for gifts to private foundations. For both long- and short-term appreciated property, the deduction is limited to 30% of AGI for gifts to public charities and 20% of AGI for gifts to private foundations.
Regardless of whether you are donating cash or property, request a written acknowledgement from the charity for gifts in excess of $250. This may, for example, take the form of a canceled check or a contribution statement from the charity, and it must indicate the amount of cash received or a description of the property given, as well as the value of any goods or services provided by the charity in exchange for the donation.
If you receive something in return for a charitable gift, such as tickets to a benefit event or an item from a charity auction, you are only permitted to deduct the amount of your contribution that exceeds the fair market value of the benefit received. Thus, if you paid above fair market value for an item at an auction held by a qualified charity, you are permitted to deduct the difference between the retail value of the item and the amount you paid.
Making the Most of It
Remember, there are some limitations on charitable giving based on the type of gift, the type of organization receiving the gift, and your adjusted gross income (AGI) for Federal income tax purposes. If you would like to maximize the tax benefits of charitable giving, be sure to consult a qualified tax professional.
This content is for educational purposes only.
Investment Advisor Representative of Spire Wealth Management, LLC. Advisory Services offered through Spire Wealth Management, LLC, a Federally Registered Investment Advisor. Securities offered through an affiliate, Spire Securities, LLC, Member FINRA/SIPC.
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