Charitable Giving Strategies

How to strategically plan your charitable giving was the focus of our October seminar. Here are some of the ways you can maximize your contributions.

Deductible vs Non-Deductible

To realize tax benefits from your donation, make sure you know which gifts are deductible and which aren’t. 

Deductions

Be aware of deduction limits. The limit for Public and Other Charities refers to the percentage of Adjusted Gross Income. A “Long Term Asset” is one that has been owned for at least one year; a “Short Term Asset” has been held for less than a year. Gifts in excess of these limits may be carried forward and used on future tax returns, up to five years.

For cars and boats, if the donation is valued in the excess of $500 the following applies:

• If the charity sells the gift, the deduction is limited to the sales proceeds.
• If it is transferred to a needy individual or the charity uses the gift, you can deduct its value.

If you work in an official capacity for a charity (such as teacher or trustee), you can deduct your mileage @ 14 cents /mile. Also, you may be able to deduct some out-of-pocket expenses.

Substantiation

Record-keeping is essential; here are some guidelines:

• All cash contributions need some sort of receipt or bank record.
• Cash contributions of $250 or more in any one day to any one charity need a receipt from that charity.
• If all non-cash contributions exceed $500 they must be detailed on your tax return.
• Appraisals are required for property contributions exceeding $5,000 (except publicly-traded securities.)

Charitable Giving Techniques

Here are some different ways that you can give.

1. Appreciated Asset (Stock or Real Estate) – Give whatever has had the greatest percentage of appreciation.
2. Life Insurance Policy – Though probably not tax-deductible, this still is a viable gift option.
3. Bargain Sale to Charity – Sell property at a discount to the charity.
4. Charitable Remainder Trust – This is a tax deferral technique. Create a trust and then transfer appreciated assets to it. The charitable trust can sell the assets without incurring any tax and reinvest the proceeds. Each year you are paid a percentage of the value of the trust. Upon your death, the charity is the beneficiary of the funds remaining in the trust.
5. Donor Advised Funds – This allows you to make a large donation to a public charity and get the deduction up front. (Helpful if you are having a high-income year.) The funds, however, may be doled out over a period of time to the specific charities you want to benefit. 
6. IRA Charitable Distribution – To reduce the tax liability on your IRA distribution, you can distribute up to $100,000 per year directly from your IRA to a charity. You must be 70 ½ or older to take advantage of this. You are not taxed on the distribution, but you also cannot take a deduction for the donation.

If you are interested in exploring any of these options, please contact us.  Email:  Gerald@AssetMgr.com

Gerald A. Townsend, CPA/PFS/ABV, CFP®, CFA®, CMT is president of Townsend Asset Management Corp., a registered investment advisory firm located in Raleigh, North Carolina.