The primary motive for most giving is to further the work and goals of institutions the donor believes in — not to save taxes. But once you have decided to contribute, you will want to plan your gifts in such a way as to maximize your tax benefits. This often means making larger contributions than you might have originally planned.
If you itemize deductions, you receive a deduction for gifts to qualified charitable institutions. You can deduct all of your gifts as long as they don’t add up to more than half of your adjusted gross income. If you donate more than this, you can deduct the excess over a five-year period.
Further tax advantages can be gained by making a gift of property that has increased in value and has been held long enough to be considered long-term property. Appreciated securities and real estate can be deducted at full current market value with no capital gains tax on the asset’s appreciation. Likewise, there is no capital gains tax when you transfer appreciated securities to fund an irrevocable trust.
Always check with your tax advisor before giving appreciated property as certain provisions of the law can affect the optimal timing and amount of your gifts. If you may be subject to the alternative minimum tax, it is particularly important to discuss your charitable gifts with a financial advisor.
A person’s financial assets may be subject to federal estate taxes at death. The minimum estate subject to taxation may change as the tax laws are revised, and the rates of taxation on amounts over that minimum may also vary. In general, the tax rates on taxable estates are significantly higher than the rates on income, so estate tax planning can be far more important than income tax planning.
The law is structured to encourage us to share the assets in our estates with charitable and religious institutions. Federal estate tax law allows unlimited deductions for gifts made to qualified charities at death. Often a well-planned charitable gift can provide an income for yourself or others and also allow you to minimize the amount of tax on your estate.
Photo: Jay Treadwell