Reduce Tax Liability

Federal income tax laws allow for a deduction of gifts made to bona fide charities.  These charities can include churches, hospitals, colleges and many other organizations. The IRS allows for these deductions based on several factors such as:

• What type of charity is it and does it benefit the general public or does it have limitations.  It can be for private purposes in some occasions.

• What type of asset is being donated to the charity?  If it is real estate or art, it can require an outside appraisal.  Does the asset have untaxed appreciation in it is always a good question.

• Is any of the gift being retained by the donor?  What control is being passed to the charity?  Are there any strings attached to the gift? Is the gift for the current benefit of the charity or is it intended to be used in the future?

These are just a few of the questions that should be asked and considered prior to any gift to a charity.  Federal law does limit the amount that can be deducted in any one tax year.  This limitation is placed on a percentage of the Adjusted Gross Income of the donor and can be limited to 20% to 50% of the value of the gift.

Public charities will provide the highest percentage of allowable deductions and are generally allowed at the highest percentage of 50%. The percentage can be affected based on the accumulated tax liability of the asset being gifted.  If a fair market value designation is used instead of a private appraisal method this can often lower the percentage of available deduction percentages.

A common desire for gifting to charities is to gift an IRA.  Rules for this category of gift will limit the deduction to $100,000 per year.  If the donor desires to gift more that the allowed amount then the tax liability would need to be paid prior to the gift.  The tax liability would be paid by the donor and often times it is best to spread the gift of an IRA over several tax years to create the greatest amount of net gift to the charity.

As with all important decisions make certain you fully understand all aspects of your decision and it is always suggested you seek competent legal and tax advice before making any important decision