Gifts of Cash

If you itemize deductions on your tax returns, the first tangible benefit of making a gift of cash to your favorite charitable organizations today is an income tax charitable deduction for the full value of the gift in most cases. The resulting reduction in income taxes payable lowers the net cost of the gift. If you are subject to state and/or local income taxes as well as federal, the combined marginal rate (after the federal deduction for those income taxes paid) should be taken into consideration in determining the gift's net cost.

If you don't usually itemize deductions, you may want to consider it for any tax year in which you make a sizable charitable donation. One technique used by people who have few itemized deductions is to alternate between years in which they take the standard deduction and make few charitable gifts, and the years in which they give double their desired annual philanthropic support and shift to itemizing.

Beware of the annual limitation on the use of charitable deductions claimed for gifts to public charitable organizations, which for any specific year is 50 percent of your adjusted gross income (AGI) for cash gifts. Any unused deductible amounts can be carried over and used for as many as five additional years, if necessary.

If you predict that your estate will be subject to estate tax at your death, keep in mind that you receive a federal gift tax charitable deduction for the value of gifts of cash made during your lifetime. Since the value also is removed from your future estate, it completely eliminates the federal estate tax. This savings reduces the net cost of your charitable gifts.

Outright Gifts and Their Results

Cash gift. A cash gift by check is one of the most common methods for making an outright charitable contribution. For cash gifts of $250 and more, donors must have written confirmation from the charitable donee, as canceled checks are no longer sufficient proof of a deductible gift.

To illustrate the net cost of a $1,000 cash gift, assume the gift is made by a taxpayer with a combined state and federal marginal income tax rate of 36 percent. The amount of the tax bracket, mulitplied by the amount of the gift, is subtracted from the gift to determine the net cost to the donor.

36% x $1,000 = $360
$1,000 - $360 = $640

Therefore, the net cost of the donor's gift is $640.

Please contact Mary Ludwig, Development Director at 712-732-5127, for more information.

The information on this site is not intended as legal, tax or investment advice. For such advice, please consult an attorney, tax professional or investment professional.

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