As we head into the final weeks of December, now is the time to start exploring the most tax savvy ways to donate cash, stock or property. For instance, liquidating investments and donating the proceeds to the charity of your choice is not the best way to handle that situation.

Donating Hard Cash or Checks
This is quite possibly the easiest method to donate to a charity but make sure you confirm that the monies are being sent to a qualified 501(c) organization as determined by the IRS. You can check by going to http://www.irs.gov/app/pub-78/ which is a database managed by the IRS and updated frequently.

Giving Your Investments Directly to Charity
Those that want to gift their investments to charity should not liquidate their positions first as there will likely be capital gains tax consequences. Rather, if you gift your long-term investments or ones that you’ve held for over one year, you may be able to completely avoid capital gains tax consequences and even deduct the fair market value of the donation. See below for limitations on deducting property.

What about Gifting to a Charitable Remainder Trust?
You’ll receive an immediate tax deduction for the value of the gift or you’ll generate annual income for a defined period of time. When that time period ends, the remaining assets will go to the trust.

Donating an IRA
Those over the age of 70 1/2 can still donate up to $100,000 to charities with funds from their IRA. The tax-free transfer allows those folks to reduce their taxable income and thus their year end tax bill. In case you forgot, IRA holders 70 1/2 or older, are required to make minimum distributions (RMDs) and this charitable donation would fulfill that requirement. This transfer doesn’t allow them to claim a tax deduction for the contribution but it could fulfill a requirement to tithe (support your church). Keep in mind that $100,000 is the limit, you could donate $5,000 from your IRA.

Best Practices for Donating for Tax Purposes

Keep Supporting Documentation. This includes a receipt from the charitable organization detailing the name of the organization, the date, the amount of the contribution and description – if it is property. Also keep any bank or credit card statements that also validate the contribution (IRS Publication 526).

Itemize to Claim the Deduction. If you want to claim the donation as a tax deduction, you must itemize rather than claim the standard deduction.

Maximum Tax Deduction for Contribution – 50% of AGI. Generally, you cannot claim a charitable deduction if your total tax deductions for charitable contributions for the year is over 50% of your adjusted gross income (AGI).

Contributing Property Can Get Complicated. If there is a capital gain associated with the Fair Market Value of the contributed property, you could only contribute up to 30% of your AGI unless you choose to reduce the gain associated with the FMV of the property. In some instances, you may not be able to contribute more than 20% of AGI. These types of scenarios can get complicated so be sure to consult with a tax consultant if you are in this situation.

More Questions? Browse Answers or ask your charitable donation tax questions now.

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