Charitable gifts are critically important to the social and economic welfare of our country. Recognizing this, the government provides many tax savings advantages and options to those who choose to support charitable efforts. Federal income tax law allows a deduction for gifts to qualified charitable organizations such as churches, hospitals, community foundations, university endowments, etc. The actual amount of the deduction is dependent upon several factors. The following are a few things to consider:
- Does the organization benefit the general public or does it have a more limited or private purpose?
- Will you make the gift now, in the future, or over a period of time?
- Is the donation you want to make an appreciated asset, cash, tangible property, or volunteer time?
- Is the gift going to be an entire asset or only an interest in the asset-like a remainder trust interest, which will pass to the charity at some time in the future?
Here are a few other facts you should know:
- Your charity must be "qualified." Your donation can be to any public or private organization that meets the Internal Revenue Code requirements for qualified charities. In many cases, the organization will be a 501(c) (3). Ask for verification.
- Your gift must be one of property. Unlike gifts of insurance, stocks, bonds, and real estate, the value of personal time and personal services contributed to a charity aren’t tax deductible.
- Your gift may be exempt from federal gift taxes. In most cases, no federal gift taxes are due on donations to qualified charities. In addition, gifts to such charities may reduce your federal estate taxes. There’s no limit on the amount of the estate tax deduction.
- Your charity pays no tax on the gift. In most cases, charitable organizations pay no income tax on the earnings of donated property, nor do charitable organizations pay tax on their receipt of a lifetime gift or bequest made through the execution of a will.
By taking advantage of the tax laws and options available to you, you may enhance your family’s financial security and actually increase the value of your charitable gift. It’s important that you work with your professional advisors when considering a charitable gift through a bequest to help you understand the benefits of tax savings that may be available to you. AA!
