Charitable Donations – Tax Advantages of Charitable Giving

    Published: 06-16-2009
    Views: 12,086
    Andrew Hastings, Vice-President of National Philanthropic Trust discusses some of the tax considerations involved in making a charitable gift.

    Andrew Hastings: Hi, I am Andrew Hastings, Vice-President of National Philanthropic Trust. I am talking about some of the tax considerations involved in making a charitable gift. The most important reason to make a gift is because you want to support a cause, that's important to you. But charitable giving can also be a great way to reduce your income and estate taxes. Tax law is complicated, so you should consult with your financial or legal advisor for tax advice specific to your situation. But here is an overview that maybe helpful. If you itemize deductions on your tax return, you maybe able to take an income tax deduction for a gift to a qualified charitable organization. What's a qualified charitable organization? A charity is a non-profit, tax-exempt organization that devotes all of its resources to charitable activities, most commonly, education, healthcare, poverty relief or religious purposes. Charities are exempt from federal income tax under section 501(c)(3) of the IRS code and can receive tax deductible contributions. That's why you often hear tax-exempt charitable organizations called 501(c)(3)s. There are more than 1.

    5 million charities currently operating in the US. When you make a gift to charity you can receive that maximum allowable tax deduction, the same year in which the gift is made. What does that mean? Well, it varies depending on the type of gift. So again you should consult with your financial advisor for tax advice specific to your situation. But here are two examples. When you make a gift of cash, the tax deduction is based on the amount contributed. You are allowed to deduct up to 50% of your Adjusted Gross Income in the tax year in which your gift is made. If you make a gift to publicly traded stocks or bonds that you have owned for more than one year, the deduction is based on the average or mean value of the securities. That's the average of the high and low prices on the date on which the gift is made. You are allowed to deduct up to 30% of your Adjusted Gross Income in the tax year in which your gift is made. If you donate goods, they must be in good condition or better according to the IRS. You must have a receipt for the goods from the charity to claim a deduction. If you donate non-cash items with the total value of more than $500, you must file IRS Form 82, 83 with your return. You may need a qualified appraisal if you donate an item or a group of items with a value of more than $5000. Here are few more reminders if you want to get a tax deduction for your gift. The organization receiving your gift must be a qualified charitable organization. Make sure you ask for their tax-exempt identification number when making the contribution. Your gift must be made completely and irrevocably with no strings attached. And you must get some form of written receipt for your gift that shows the amount given when and to whom. You can not deduct casual donations that you drop into a charities collection box or bucket without a receipt to backup your claim. So these are just some of the tax benefits of charitable giving.