Heeney & Associates P.C.
Phone: 215-262-8707 Fax: 610-302-3062
103 Grandview Road, Boyertown, PA 19512

Charitable Giving

When you give, you receive: Making Charitable Donations

By the time you read this, the holiday season will be in full swing. By this time, you may have considered donating to a charity. Such a donation not only helps the less fortunate, but may also grant you a tax benefit. If you itemize your deductions when preparing your tax return, your contribution to a qualifying charitable organization will be 100% deductible up to 50%, 30% or 20% of your adjusted gross income depending on what and to whom you donate. Keep in mind two things (1) that donations of $250 or more at any one time to a qualified charity are deductible only if you get a written proof from that charity; and (2) your donation must occur before December 31 of the tax year in which you plan to claim the deduction.

The next question you may have is what to donate? While cash is the normal medium, you may donate personal property, stocks, trusts, bequests, real estate and life insurance, to name a few. Also remember that if you don?t have anything to spare, think back on the year and see when you have volunteered your time for a qualifying charity. In some cases, you may be able to deduct out-of-pocket expenses that arose from performing volunteer work.

When donating personal property, its value is computed as being its fair market value at the time of donation. If you bought a computer two years ago for $1,000 and it is worth $500 this year, then it will become a $500 deduction on your tax return for this year. Fair market value is basically how much would you get for the item if you sold it to someone today.

You may also donate stocks. When doing so, they are only deductible up to 30% of your adjusted gross income. However, donations of stock have two major advantages: (1) your deduction is the stock?s fair market value on the date you transfer it to the charity; and (2) you may avoid capital gains taxes.

Donating income from trusts is not common for the average person. People who donate trust funds are usually attempting to reduce the size of their estate in order to keep their inheritance taxes under control. They reap the benefit of the trust, while keeping it from growing so large as to burden their heirs with overwhelming tax liability. In short, most of these ?charitable remainder trusts? have three common advantages: (1) avoidance of capital gains taxes; (2) a charitable tax deduction in the year the trust is created; and (3) an increase in the income of the non-charity beneficiary for life.

The most painless way for most people to donate to a charity is through their own wills. While it may not reap a tax benefit now, it will have no adverse effects on your income or inheritance taxes.

You may also donate gifts of real estate. The immediate advantage is an avoidance of capital gains taxincurred by an increase in the property?s value over time. You can give the property to your charity outright, or as a remainder interest. With remainder interests, you get to keep the property for use during your lifetime, but you get an immediate tax deduction in the year the arrangement is made to give the remainder interest to the charity!

Another method of giving that can be as painless as donating a bequest from your will is to contribute your life insurance proceeds to your charity. If the policy has a cash value and you name a charity as your beneficiary, you may take a deduction that is approximately equal to the value of the policy. Furthermore, if the policy requires annual premiums, you may deduct 100% of the premiums each tax year.

The final question is what is a qualifying charitable organization for tax purposes? Typically, they are most nonprofit charitable organizations, schools, war veteran?s groups, hospitals, the United States government and religious organizations. Many, except for government and religious organizations, must apply to the IRS to become qualified organizations. If you are unsure if your charity is a qualified one, contact the IRS.

In this season of giving, please consider sharing what you have with the less fortunate. The tax breaks involved exist to reward altruism, not to supplant it. If you choose to donate to a charity, please consider the qualifying charities of Bucks County.

DISCLAIMER: This column is a service providing only general legal advice. The information is not meant to be acted upon without proper legal assistance. As with all such matters of the law, anyone requiring legal help is strongly encouraged to seek the aid of an attorney.

Copyright 2014 Heeney & Associates, a Boyertown, PA Law Firm.