Global Tax Insights
Donate to Charity in 7 Tax-Friendly WaysSeptember 20, 2016
Compelled to help victims of a recent tragedy or natural disaster? Learn how to make the most of a charitable contribution.
Looking to donate to charity this year? Looks like you’re not alone. Studies have shown that charitable giving is steadily on the rise due to recent tragedies and natural disasters. Last year donations reached an all-time high of just under $375 billion. Though most people donate to charitable causes for philanthropic reasons, there is also another incentive to donate—a tax deduction, which everyone could use a refresher on.
7 tax-savvy donations
- Monetary donations- Cash and cash-equivalent contributions are generally tax deductible. Note that the donation must go to a qualified charity, which you can verify on the IRS Exempt Organizations Select Check.
Amount of the deduction? The amount of this deduction is 50% of your AGI (adjusted gross income), and any excess can be carried forward up to five years. Read more about this deduction in our blog, “Don’t Forget to Document Your Charitable Contributions”.
- Property donations- Donating property can sometimes result in a bonus tax break. In situations where you are donating appreciated property that would have qualified for long-term capital gain treatment if you had decided to sell it instead of donate it, you are permitted to deduct the property’s FMV (Fair Market Value) and avoid being taxed on the appreciation since there was never a sale to trigger gain recognition.
Amount of the deduction? Donations of capital gain property are typically limited to 30% of your AGI, but any excess is subject to the same carry-forward rules as monetary donations.
- Quid pro quo donations- We wrote a whitepaper on this that you’ll want to look at, but, essentially, a donor can receive a benefit in return for a contribution through this tactic. For example, if you donate $150 to a charity and the charity gives you a $50 concert ticket in return, you have made a quid pro quo contribution. When you make a donation even partly in exchange for goods or services in excess of $75, the charity will provide you with a good faith estimate of the goods and services received and the amount exceeding the benefit’s value.
Amount of the deduction? Your deduction is limited to the difference between the value of the cash or property you donated and the value of the benefit you received from the qualifying charity.
- Volunteering- Any out-of-pocket expenses you pay on behalf of a charity you volunteer for may be deductible, even though the actual time spent volunteering is not deductible.
Amount of the deduction? That depends. For example, you can deduct the cost of driving to and from the volunteer location, at a rate of $0.14 per mile. You can deduct any out of pocket expenses for materials, supplies, uniforms, parking and tolls, but the value of the work you actually perform is non-deductible.
- Donor-Advised funds- If you’d like to make a charitable contribution today but still need time to decide exactly which charities to give to, a donor-advised fund is the right choice for you. Generally these are set up with a qualified financial institution that distributes your funds to charities they suggest as well as to those you recommend.
Amount of the deduction? You'll be able to take a deduction, subject to the 50% AGI limitation for cash gifts and the 30% AGI limitation for gifts of mutual funds; appreciated securities; real estate and other assets, equal to the amount you contribute to the donor-advised fund itself. You will not receive a deduction for the amounts the donor-advised fund later distributes to qualifying charities on your behalf.
- Booster clubs- If you contribute to a local college’s (or perhaps your alma mater’s) athletic booster club, you can deduct the cost of the donation. Note that booster club memberships typically allow you preferred seating arrangements for certain home games, for example, but costs for these tickets are nondeductible.
Amount of the deduction? You are able to deduct up to 80% of the cost of a donation made to a booster club - as long as it's a qualified charity - for the right to purchase tickets. Any other donations to such organizations follow the rules applicable to their category type, e.g., cash, capital gain property, etc.
- Conservation easements- An easement is a voluntary legal contract between a landowner and a land trust/government agency that permanently limits uses of the land to protect its conservation values. Under the rules for a conservation easement, you are able to donate an interest in real estate to a qualified organization, like a government unit or publicly supported charity. You can still retain ownership and qualify for a deduction under these rules.
Amount of the deduction? The annual deduction is limited to 50% of AGI and is based on the difference between the fair market value (FMV) of the land with and without the easement. Contributions that exceed 50% of AGI in the current year can be carried forward for up to 15 years (an extension of the PATH Act of 2015.)
Though it seems counterproductive, and perhaps a bit greedy to concentrate on the money you’ll save while giving money to others in need, it is important to take advantage of deductions when you can. After all, more money saved means more money you can potentially give to others in need.
For more information on charitable gifting strategies, contact us.