Using Tax Provisions to Make Larger Charitable Donations

Many tax code provisions can help taxpayers afford to give more during their charitable givings. Taxpayers who give appreciated assets to a qualifying charity, as opposed to giving cash, can increase their tax savings by avoiding capital gains tax. Taxpayers considering making a large charitable donation of appreciated property should seek out legal advice as the rules can be quite complicated.

A donor advised fund is another way taxpayers can make larger charitable contributions. Typically, taxpayers preparing to retire will set up a donor advised fund though a community foundation or financial institution using a large lump sum. The gift is spread out over several years, but the donor can put the money in and receive the tax deduction in one year. 

A few additional tax tips for taxpayers considering making a charitable donation are below:

• Ensure the charitable organization is qualified (I.R.S. Publication 78).
• Keep written records of charitable contributions from recipients of gifts of $250 or more.
• The income rates recommended by the American Council on Gift Annuities are generally slightly lower than before for taxpayers who are sixty-nine and younger. The rates are slightly higher for taxpayers who are seventy-five and older.
• Taxpayers who hold empty stock that includes net unrealized appreciation may benefit from making a direct gift to a charity because a charitable deduction is available for the full market value of the stock even though only the basis of the stock must be picked up as income.   

SeeJan M. Rosen, Tax Rules Allow an Array of Givers to Be More Generous, The New York Times, Nov. 1, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.