Like The Image Above? Click Here To Copy And Embed It On Your Website Or Blog:

Place cursor on the box to copy:
<a href="http://imarketingbiz.net/is-your-charitable-donation-deductible/"><img title="Income Tax" src="http://www.imarketingbiz.net/wp-content/themes/revolution_tech-30/images/chuks/income-tax.jpg" alt="Income Tax" width="700"></a>
Close (X).

Is Your Charitable Donation Deductible?

If you are thinking about making a charitable donation, you might be asking the question I hear quite often, “How do I know if my charitable donation is deductible?” This is an important question to ask because several things changed with enactment of the Pension Protection Act of 2006. These relate to:

– Whether the charity is approved by the IRS (most churches are approved) — The type of charitable donation determines the amount you can deduct — There have been changes regarding the documentation you must have — There are new penalties if you over-value your charitable donation — There rules about how you deliver the gift and when it is considered a completed gift

The goal of this article is to outline some of the major parameters of the tax law, although I do not pretend to be a tax expert.

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.

Real Estate, Bonds, Stocks

Whether your charitable donation is real estate, bonds or stocks, the calculation of the value of the donation for tax purposes depends on the length of time you have held the asset. If you have held it for more than one year, the deductible value is the fair market value of the asset. If the gift is real estate, however, there are other stipulations that might limit the amount you can claim to the cost basis.

If the asset has been held for less than a year, it would produce ordinary income, not a capital gain, if sold. Therefore, the charitable donation is limited to the cost basis. Other examples of deductions limited to the cost basis are works of art donated by the artist and inventory.

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.

Planes, Trains and Automobiles

A car donation has especially been the source of confusion. There are new rules, which became effective January 1, 2005.

If the church or other charitable organization fixes up the vehicle and uses it or gives it to a needy individual, the fair market value of the vehicle is the deduction basis for the charitable donation. If, however, the charity cant use the vehicle and sells it, the tax deduction basis is the lower of the fair market value or the price they get for the vehicle.

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.

Robert D. Cavanaugh, CLU is a 39-year veteran of the life insurance, financial and estate planning industry. He publishes The Smart Giver, a planned giving educational program which advances techniques to increase income and reduce taxes while simultaneously helping churches and non-profits. More information about how various kinds of gifts can result in a charitable donation can be found on his blog.

TurboTax Deluxe Federal + E-file + State 2011 for PC [Download]TurboTax Deluxe: Guides you step-by-step to maximize your deductions

TurboTax Home & Business Federal + e-File + State 2010 - [Old Version]If you are a sole proprietor, consultant, contractor or single-owner LLC, TurboTax Hone and Business is the right choice for tax savings. Includes fre... Read more...

Related Videos:

Rate this article:

VN:F [1.9.17_1161]

please wait...

Rating: 0.0/5 (0 votes cast)