The Wagon Legacy Logo

Choosing a Gift to Give To Charity

If you are considering making a donation to a public charity, you are not limited to donating
cash. Depending upon your financial situation, giving objectives, and the needs of the charitable
organization, certain accounts or pieces of property may be better suited for donation to the
charity.


Cash
Writing a check to your favorite charity is the fastest and easiest way to make a financial impact.
In some instances, you may be writing a check as part of your weekly donation to a church, in
which case you can count the entire amount as a donation to the church. On the other hand,
you may choose to attend a dinner sponsored by a charity, and in that case, only a portion of
the purchase price will be eligible for the income tax deduction. In these circumstances, the
amount that you have paid to attend the dinner needs to be reduced by the amount of benefit
you have received (i.e., the cost of the dinner). The remaining amount will be deemed to be the
charitable contribution. Most of the tax-exempt organizations that host these types of events
print the cost of attendance and the amount that is considered a charitable donation on the
ticket or advertising. Whether it is the entire donation, or a portion of it, the amount can be
deducted from your income tax for the year the gift was made. For most cash donations to a
charity, the total amount that can be deducted is limited to 60% of your adjusted gross income.


Appreciated Property
One major benefit of donating appreciated property (such as publicly traded stocks or real
estate) to a charity is avoiding the capital gains tax that would otherwise be due upon its sale. If
you were to sell the stock or real estate and give the cash to a charity, you would first be
required to pay capital gains tax on any increase in its value from the time you purchased it to
the date it was sold. However, if you donate the property to the charity and the charity makes
the sale, it will not be required to pay tax on the capital gain. Additionally, giving the stock or real
estate to the charity means that it actually will receive more value since there will be no
reduction in the donation due to the capital gain tax. Lastly, when making a gift of appreciated
stock or real estate that you have owned for more than one year, you are able to receive an
income tax deduction in the year it was donated equal to its fair market value. If you are
donating appreciated property that you have owned for less than a year, the value of your
donation is limited to the fair market value of the property at the time of donation minus the
amount of growth (appreciation), otherwise known as the cost basis. Be aware that the limit for
donating appreciated property to charities is 30% of your adjusted gross income.


While this option is a great way to reduce your taxes, it is important to do your research to make
sure that the charity to which you want to donate accepts these types of donations. Some small
organizations may not have an efficient way of investing, managing, or selling appreciated
property and would prefer a donation of cash.


Retirement Accounts

If you are currently 72 years old or older and want to donate money to a charity, you may have
the ability to make a qualified charitable distribution from your account to the charity and avoid
paying income tax on the distribution. If you take the required minimum distribution (RMD) and
then donate the money to a charity, you will be required to pay income tax on the RMD.


Especially if you do not need the RMD, a qualified charitable distribution makes sense, as it will
satisfy the requirement that you take the annual distribution (if you are required to take it), allow
you to support the charity, and enable you to avoid paying income tax on that distribution.
However, it is important to note that a qualified charitable distribution does not qualify for an
income tax deduction because the distribution is not included on your income tax return as
income to be taxed.


Another way you can donate your retirement account is to name the charity as a beneficiary so
that after you die, the retirement account is given to it. Regardless of who receives distributions,
whether it is you (the owner) or a person you designate as a beneficiary, each distribution is
subject to income tax. By donating the retirement account to a charity, it is able to use the
money without incurring income tax liability. Although the retirement account will still be factored
into computing any estate tax that could be owed upon your death, your estate will receive a tax
deduction that can help offset the estate tax owed. Additionally, since the charity will not have to
pay income tax on the distributions from the inherited retirement account, it will receive a larger
benefit from the account than an individual would.


We Are Here to Help
Giving to your favorite charity is not only beneficial for society but also has some potential tax
benefits for you as the donor. With many options available, we are here to assist you and your
financial team in developing a strategy that will be beneficial for all parties involved. Give us a
call today so we can discuss your charitable goals and get you on the path to leaving a lasting
legacy.

Facebook
Twitter
LinkedIn
WhatsApp
Email

Sign up for our Newsletter

Sign up to get exclusive offers and new tips delivered to your inbox.