Charitable Gifting Strategies

Charitable contributions of money or property may entitle you to an income tax deduction in the year of the gift. The deduction generally is equal to the amount of cash or the fair market value (FMV) of property contributed. The deduction may be limited based on the type of contribution (cash or property) and the nature of the organization to which you make the contribution (for example, a public charity or private foundation). Excess charitable contribution deductions generally may be carried forward for five years.

Most deductible contributions are made to U.S. organizations described in section 501(c)(3) of the Internal Revenue Code, which generally describes non-profit entities that are organized and operated exclusively for religious, charitable, scientific, educational, and certain other exempt purposes.

These organizations are classified as either public charities or private foundations. In addition, contributions to governmental entities may be deductible. Note, however, that contributions to non-charitable organizations generally are not deductible. Further, with certain treaty-based exceptions, contributions to organizations formed outside the United States generally are not deductible.

Deduction Limitations

Limits on charitable contribution deductions vary depending on whether you are contributing to a public charity or a private foundation.

Public charities generally include:

  • churches, schools, hospitals, qualified medical research organizations, and qualified agricultural research organizations
  • organizations that have active fundraising programs and receive contributions from a broad cross-section of sources
  • organizations that receive income from the conduct of activities in furtherance of their exempt purposes
  • organizations that actively function in a supporting relationship to one or more other public charities.
Charitable Gifting Strategies

Generally, gifts of cash to public charities are fully deductible up to 60% of a donor’s AGI (50% prior to 2018), and gifts of appreciated property or gifts “for the use of” public charities are deductible up to 30% of a donor’s AGI. Gifts of property, when the deduction is limited to the donor’s basis, are deductible up to 50% of a donor’s AGI.

Private foundations typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources). Private foundations generally belong to one of two categories: (1) “non- operating” or “grant-making” foundations (those that make grants to other organizations or individuals), or (2) “operating foundations” (those that directly operate charitable programs). Generally, gifts of cash to non-operating private foundations are fully deductible up to 30% of a donor’s AGI, and gifts of appreciated property to non-operating private foundations are deductible up to 20% of a donor’s AGI. Gifts to operating foundations, meanwhile, are subject to the same limits as gifts to public charities.

Types of Contributions

Charitable Gifting Strategies

After evaluating your tax and philanthropic goals and selecting a charitable organization, you will need to decide whether to contribute cash, services, or property. As discussed above, donations of cash generally are straightforward and limited only by the percentage deduction limitations. Conversely, deductions for services (for example, time incurred, expertise rendered, or use of property) usually are not permitted.

Special rules apply to contributions of certain types of property, such as:

  • Clothing or household items
  • A car, boat, or airplane
  • Taxidermy property
  • Property subject to a debt
  • A partial interest in property
  • A conservation easement
  • Inventory from your business
  • A patent or other intellectual property

Contributions of Future or Partial Interests

Certain gifts of future interests in property will result in a current tax deduction. By giving future interests, you can accelerate deductions to the year of the gift while maintaining an income stream or the property for you or your beneficiaries. Charitable remainder trusts, pooled income funds, gift annuities, conservation easements, and remainder interests in a personal residence each afford this type of treatment. (See section on “Transfer Tax Planning.”)

Charitable Gifting Strategies
Charitable Gifting Strategies

Recordkeeping Requirements

You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends upon the amount of your contributions and whether they are cash, property, or out-of-pocket expenses. Note that a charitable organization generally must provide you with a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods and services (for example, a fundraising dinner or entertainment).

If you make a contribution through cash, check, electronic funds transfer, debit card, credit card, or payroll deduction, you must maintain a bank record or written receipt, letter, or acknowledgment from the charitable organization. The record must show the name of the organization, the date of the contribution, and the amount of the contribution. For each cash contribution you make that is $250 or more, you must obtain a contemporaneous written acknowledgment from the charitable organization.

If you make a contribution of property, the records you must keep depend upon whether your deduction for the contribution is less than $250; at least $250 but not more than $500; over $500 but not more than $5,000; or more than $5,000. For all contributions of property, you must also keep additional written records that include, but are not limited to, a description of the property, the FMV of the property on the date of the contribution and how that value was determined, the basis of the property, and any terms or conditions attached to the contribution of the property.

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