Permanent Value

Week in Review 6/4/13

Bruce Doole
June 4th, 2013


Charitable giving is a sensible tax strategy for amplifying tax advantages. Deciding which type of tax deduction to pursue (gift, estate, or income tax deductions) determines the availability of a tax deduction for a charitable gift.

Charitable gifts must be given to a qualified charitable organization, also known as 501(c)(3) organizations, to be eligible for a tax deduction. A rule of thumb in finding qualifying charities is to look for religious, scientific, literary, educational, and governmental organizations.

Income-tax deductions
During your lifetime, income tax deductions for charitable gifts are limited to a percentage of your adjusted growth income, also known as your AGI. The percentage for tax deductions ranges from about 20 to 50 percent of the AGI, and itemizing deductions is required to be eligible. The percentage varies depending on the type of charitable organization receiving the gift, the format of the gift, and the gift’s nature (i.e. ordinary income, capital gain, or appreciated property).

Avoiding taxes on capital gains
Charitable giving can be utilized to avoid taxes due on highly appreciated assets, thus preserving the asset’s value. When an appreciated asset is given to a non-taxpaying charitable organization, the organization is exempt from tax due on capital gains. Charitable remainder trusts are ideal for appreciated stock or real estate.

Assets held after death
When assets are held until death, the asset rises to fair market value, also known as the FMV, for the recipient. Also, the donor’s basis is replaced with the FMV and the FMV becomes the basis of the asset for the recipient. In addition, any gain recognition for the recipient is extinguished.

Estate-tax deduction
Any bequest given to a charitable organization entitles an estate to an estate-tax deduction. When a charitable contribution is made by will, it is fully deductible to the estate as long as the taxpayer’s gross estate valuation lists the value of the property given. ?

Source: Ohio Nationial Financial Services, Inc.