The Rewards of Making Charitable Gifts

Many people are surprised to learn that the gifts they make to charitable organizations such as your favorite charitable organizations can also bring personal financial benefits. To encourage philanthropy, federal law provides you a number of tax breaks for charitable gifts, depending on the type of asset you donate and the giving method you choose:

• Income tax deduction. If you regularly itemize deductions on your federal income tax return, the first tangible benefit from an outright charitable gift is an income tax charitable deduction. The deduction is limited for gifts of cash to an overall maximum of 50 percent of your adjusted gross income in any year; you may, however, carry the excess deduction forward for five years. There is a special 30 percent limitation on certain capital gain property.
  
• Capital gains tax avoidance. If you sell an asset that you have owned more than a year, you pay up to a 15 percent capital gains tax (28% for "collectibles") on any appreciation (plus any applicable state tax). By donating the asset instead, you eliminate the tax on any capital gain.
  
• Federal estate tax reduction. Any gift you make today reduces the value of your estate at your death. The result is a reduction in the federal estate tax, which might otherwise be due when your beneficiaries inherit your estate.

Case Study: One Gift, Many Benefits

Donor Profile: Terri owned $10,000 worth of stock in a manufacturing company that she wished to give to a charitable organization.

Gift Vehicle Used: Outright gift of stock.

Benefit to Charitable Organization: Used the proceeds from the sale of the stock to establish a fund in Terri’s name.

Benefit to Donor: Terri’s greatest reward is knowing that she has made a lasting difference in the lives of others.

In addition, Terri enjoys two tax benefits. First, she receives an income tax charitable deduction of $10,000, despite originally paying only $4,000 for the stock. Second, she avoids paying any tax on the $6,000 capital gain.

Note: Had Terri sold the stock and given charitable nonprofits the proceeds from the sale, she would have paid $900 in capital gains tax (15 percent). Moreover, without the $10,000 charitable deduction, in her 35 percent tax bracket she would have paid $3,500 more in tax. In total, Terri saved $4,400, reducing the net cost of her gift to $5,600.

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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