A gift to a qualified charitable organization generally results in a charitable contribution itemized deduction, which can reduce your income taxes. The deductibility of a charitable contribution can effectively reduce the actual cost of making the charitable contribution by your tax savings. For example, if you are in the 45 percent combined federal and state income tax bracket, the actual cost of a $100 charitable contribution is only $55 ($100 less the $45 tax savings).
A contribution to a qualified charitable organization is generally deductible in the year in which it is made. Charitable contributions can be made utilizing cash as well as other property. A charitable contribution of appreciated property held for more than one year can generally be equal to the property’s fair market value. This can be very advantageous, since a taxpayer can deduct the full fair market value of the property contributed without being subjected to tax on any of the appreciation.
There are limitations on the current deductibility of charitable contributions. For charitable contributions made to a public charity, a contribution of cash is limited to 50 percent of the taxpayer’s adjusted gross income. For contributions of appreciated property held more than one year, the charitable contribution limit is generally 30 percent of the taxpayer’s adjusted gross income. For example, if a taxpayer’s adjusted gross income is $100,000, the charitable contribution deduction limit for the year is $50,000 for a cash contribution and $30,000 for a contribution of appreciated property held for more than one year. Any excess charitable contributions are carried forward and can be utilized over the next five years, subject to the limitations.
Charitable contributions of property, other than publicly traded securities, in excess of $5,000 must be supported by a qualified appraisal. Charitable contributions of $250 or more must be supported by a written confirmation from the charity. In addition, the charitable organizations must estimate the fair market value of any goods or services given to the taxpayer in exchange for their contribution, which reduce the amount of the charitable contribution deduction.
Remember, contributing to a local charity provides personal satisfaction for you and is an opportunity to make a difference in your community. In addition, your gift may reduce the amount of taxes you owe! Parasol is here to help to make your giving simple and effective. We can offer a range of solutions to address both your tax concerns and charitable intentions.
This brief summary of certain federal income tax laws is for informational purposes only. Please consult your own tax adviser to determine the potential federal and state tax benefits from making a charitable contribution.
Tax Benefits of Charitable Contributions is provided by George Ashley of Ashley Quinn, CPAs and Consultants, Ltd. For more information visit AshleyQuinnCPAs.com.