Strategic Planning Can Maximize Many Benefits of Charitable Giving

Charitable organizations play an increasingly important role in American society, and many charitable groups rely heavily on the generosity of individual donors to fund their operations and continue their vital work. Charitable contributions provide an attractive way to support worthy causes while also offering the added benefit of generating tax deductions.

While the primary motivation in charitable giving is helping a specific organization, it’s also important to understand the income tax guidelines regarding donations. Here are some of the primary considerations:

• Deductibility: To be deductible, contributions must be made to a qualified charitable organization and must be made without the expectation of receiving anything in return.
• Valuations: Charitable deductions are generally equal to the fair market value of the property when contributed. However, if the value of the property has increased, you may have to reduce your charitable deduction by the amount of the appreciation.
• Ordinary Income versus Capital Gain Property: Deductions for contributions of ordinary income property, or property whose sale would generate ordinary income or short-term capital gain, are limited to your cost basis. However, deductions for contributions of capital gain property, or property whose sale would generate long-term capital gain, are generally equal to the property’s fair market value.
• Choice of Charity, Type of Property Affect Deductions: The amount of your charitable deduction may be limited to a percentage of your adjusted gross income, depending upon the type of qualified charitable organization and the kind of property gifted.
  • The 50 percent limit applies to gifts to public charities, such as churches, schools, hospitals, or publicly supported organizations. The deductions may be further curtailed depending on the type of property gifted.
  • The 30 percent limit applies to gifts of long-term capital gain property to a public charity.
  • The 20 percent limit applies to all long-term capital gain property contributions to a qualifying charity other than a public charity.
• Carrying Over Deductions: After applying the percentage limitations, you may carry over any excess charitable deductions for the next five years.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.