by Allyson Hauss
Can you believe it is almost time for the holidays? We will soon be eating turkey and making gift lists for family and friends. And don’t forget decorating and planning parties. I can almost smell gingerbread cookies, a crackling fire, and fresh cut pine trees!
It truly is the most wonderful time of the year – and a great time for giving! Whether we are giving of our time or resources, the holidays bring out the giver in all of us as we look for ways to help our neighbor or be a blessing to those in need.
The most rewarding benefit of charitable giving, of course, is the joy of contributing to a good cause, a strong belief, or a great need. But there is an extra bonus in charitable giving when that gift can also reduce your federal and state income tax, reduce your estate tax, and/or possibly reduce or eliminate capital gains tax.
For purposes of charitable giving, charities are classified as public or private, and there are deduction limits determined by the type of charity and the type of property. Keep in mind, however, that you must itemize to deduct a charitable gift, and only contributions made to qualified charitable organizations qualify for an income tax deduction. In addition, the gift must be made prior to the close of the taxable year for the gift to be deductible in that year.
If a charitable gift is made in cash, the amount of cash given is the deductible amount of the gift, up to 50% of the donor's adjusted gross income (AGI). The rules for gifts of other kinds of assets can become a little more complex. One of the more common options includes gifting appreciated stock. The charity receives the full market value of the gift, the donor receives a charitable deduction - and avoids long term capital gains!
When a gift of tangible personal property or real estate is made to a charitable organization that will use that property in their charitable function, the deduction for income tax purposes is generally the fair market value of the property on the date of the gift. If the property is subject to depreciation recapture, the fair market value is reduced by the potential depreciation recapture on the asset. The IRS has many rules covering income tax deductions for charitable contributions by individuals, which is why it is important to be knowledgeable as you choose where and how to give. IRS Publication 561 Determining the Value of Donated Property and IRS Publication 526 Charitable Contributions are great resources and a good place to start.
Concerning gifts to family and friends, every person may gift transfer-tax-free per donee up to the annual exclusion for the year, which for 2017 is $14,000. This means you can give up to $14,000 to as many related or unrelated people as you would like each year. So, if you have 2 children and 5 grandchildren, you can gift $98,000 in tax free-gifts this year. As a married couple, you can double that amount to $196,000 with each spouse giving half!
You can also make a tax-free gift by making a payment for qualified medical expenses or tuition for someone else. You must pay the qualifying medical care provider or educational organization directly to qualify for the exclusion, but what a great way to give a much-needed gift this season. Contributing to a 529 education savings plan is another great way to give the gift of education!
Giving and gifting – so many choices! What a wonderful time to celebrate in a purposeful way as the leaves change and the cold weather moves in!
Remember that however you decide to give or gift as we quickly approach the holidays, it is best to have a plan. Each person is unique, and your financial plan should be driven by your values and what is meaningful to you and your loved ones. Your tax advisor and financial planner can help assist and guide you to determine the wisest way to achieve your giving goals that will bring joy to you and your family, bring hope to those around you, and be an integral part of your overall financial plan.
This article is for information purposes only and does not constitute a recommendation.