Charitable contributions are a means to support and help a cause you believe in and, at the same time, you may be able to deduct your contributions for income tax purposes. In order to obtain an income tax charitable deduction for 2014, your charitable gifts must be made by December 31 and properly documented. The added benefit of your charitable contributions is that, for estate planning purposes, this type of gifting can reduce your estate and, therefore, your possible estate tax exposure.
Gifting Appreciated Assets to Charity– If you are considering giving to charity, one way to avoid capital gains taxes and the 3.8% surtax on net investment income on the sale of appreciated property is to gift the appreciated property to a charity (instead of selling the property, recognizing the gain, and contributing cash to charity). You get an income tax deduction equal to the fair market value of the property (subject to normal AGI and itemized deductions limitations), and the charity can sell the property and pay no capital gain tax because it is a tax-exempt entity. The appreciated property must be a long-term capital gain property (held for more than one year). Also, your contribution must be to a qualified charity. Different rules apply, for example, to gifting appreciated properties to private foundations. If you are uncertain of an organization’s charitable status, you should consult with your tax and legal advisors.
Substantiate and Document Your Gifts– When making significant charitable contributions, their deductibility depends on your proper compliance with the IRS substantiation rules. In other words, you need the proper documentation for your gift. Generally, you can substantiate cash gifts to charity of less than $250 with a reliable record such as a canceled check, written receipt or a credit card statement. The record should include the name of the charity, the amount and date of the gift. For any cash gifts in excess of $250, be sure to obtain a proper “contemporaneous” receipt from the charity before filing your tax return, even if the donation was made to your own private foundation. The receipt must include the date and amount of the gift, describe any non-cash donations, indicate the value of any goods or services provided you received as consideration for the donation and any intangible religious benefits provided. A canceled check does not meet these requirements. The receipt and acknowledgement from the charity can be sent by email.
If your non cash gifts total more than $500 for the year, you need to file Form 8283 with your federal income tax return. Also, if your gifted property is valued at more than $5,000 ($10,000 for closely held stock) you’ll need a “qualified appraisal” from a “qualified appraiser”. No appraisal is needed for publicly traded stock.
There are specials rules for gifts of art, clothing, household items and used cars.
Charitable contributions not only benefit the recipient of the gift but also provide you, the donor, with an income tax deduction opportunity and a reduction in your estate and your possible estate tax exposure. Compliance with the charitable contribution rules, including the substantiation rules, is required to take advantage of these tax opportunities. Consult with your tax and legal advisor if you are considering a significant gift to a charity.
Gita K. Nassiri | Attorney at Law/ CPA
NASSIRI LAW FIRM, INC.
2794 Gateway Road, Suite 101
Carlsbad, CA 92009