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Is Your Charitable Donation Deductible?
By Robert D. Cavanaugh, CLU on September 10, 2009 |
Total Viewed: 366 |
| Post by : Jihoy Articles |
| Category: Finance |
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People frequently ask me about taking a tax deduction for their charitable donation to the church or to other charities. Most people have been confused about what is and is not deductible since the changes resulting from passage of the Pension Protection Act of 2006. Several factors determine how much can be deducted for a charitable donation:
-- Charities approved by the IRS -- The amount of the deduction permitted for various categories of charitable donation -- The documentation required to support the amount of the deduction -- The amount of penalties you might be forced to pay for over-valuing your charitable deduction -- How the charitable donation must be delivered and when it is considered a completed gift
In this article, I will cover the charitable donation deduction allowed for the most common categories of gifts.
Cash
Cash is the most common type of charitable donation. It is also the easiest to understand. Your gift to your church or other public charity is deductible up to the equivalent of 50% of your adjusted gross income (AGI). This is different for a private family foundation.
Charitable Donation of Bonds, Real Estate, Inventory or Stock
Several kinds of assets are commonly grouped together. Whether your charitable donation is stock, bonds, or real estate, the way it is claimed and the amount that can be claimed depends on how long you have owned or held the asset. If you have held it for more than one year, your deduction will be based on the fair market value of the asset. But some additional stipulations apply to gifts of real estate.
If you have held the asset for less than one year your charitable deduction would be based on ordinary income produced from the sale. The deduction would be based on cost. This calculation would also apply to the donation of a work of art by an artist to a charity. A gift of inventory would also be based on the cost.
For example, let's assume I own a shoe store. When my church has a shoe drive to benefit children I donate 200 pairs of shoes from my inventory. My tax deduction for my charitable donation would be limited to my cost for the shoes, not their retail value.
Series E and EE Bonds
By law, Series E and EE bonds cannot be transferred to my church or other charity during my lifetime. If I want to make my bonds a charitable donation, I must first cash them. Then I must pay tax on the gain (interest paid). Then I can contribute whatever amount is left to the church or other charity.
Transportation Vehicles: Automobiles, Trains, Planes
Giving cars is becoming increasingly popular, although it is very confusing to taxpayers. New rules on charitable donation of vehicles went into effect on January 1, 2005.
If the charity doesn't have a use for the donated vehicle and sells it, the charitable donation deduction is whatever they get for it or the fair market value, if lower. However, if the charity fixes it up, uses it or plans on giving the vehicle to a needy person, you can deduct the fair market value.
Disclaimer
This article is intended to be informational, not authoritative. I am not a tax authority. Before you make any charitable donation for which you plan to take an income tax deduction, you should consult a tax professional. Further, because some charities do not accept all types of gifts, it is wise to consult the organization to which you plan to make the donation in advance. |
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About the Author:
Robert D. Cavanaugh, CLU is a 39-year veteran of the life insurance, financial and estate planning industry. He publishes The Smart Giver, a (http://www.thesmartgiver.com) planned giving educational series which advances techniques to increase income and reduce taxes while simultaneously helping churches and non-profits. More information about how different kinds of gifts can result in a (http://www.thesmartgiver.com/blog) charitable donation can be found on his blog. |
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