Tax Breaks for Charitable Giving

You probably know that you can get an income tax deduction for a gift to a charity. But there is a lot more to charitable giving.

For example, you may be able to benefit a family member and a charity at the same time and still get a tax break. Or you may be able give appreciated property to a charity without being taxed on the appreciation. These benefits can be achieved, though, only if you meet various requirements including substantiation requirements, percentage limitations and other restrictions. We would like to take the opportunity to introduce you to some of these requirements and tax saving techniques.

First, let's take a look at the basics: Your charitable contributions can help minimize your tax bill only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes. To get a current deduction, the charitable gift must be to a qualified organization and must not exceed certain percentage limitations.

You also need to substantiate your donations. Generally, a bank record or written communication from the charity indicating its name, the date of the contribution and the amount of the contribution is adequate. If these records are not kept for each donation made, no deduction is allowed. Remember, these rules apply no matter how small the donation. However, there are stricter requirements for donations of $250 or more and for donations of cars, trucks, boats, and aircraft. Additionally, appraisals are required for large gifts of property other than cash. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible.

Another potentially valuable technique may be to make a charitable contribution from your IRA. Individuals age 70 1/2 and older may temporarily distribute up to $100,000 from their IRAs tax-free to charitable organizations. Because this special treatment is temporary you'll need to act soon.

Now a word about special gift-giving techniques. There are some strategies that can help minimize your tax liability. Making gift to another individual, such as a child, is one. For example, you can give up to $13,000 in 2009 tax-free to another individual or $26,000 for married couples making joint gifts. However, you need to be very careful and rely on professional help. There are a lot of scams and schemes that really push the envelope. The IRS is aware of these abusive practices and is cracking down on taxpayers who use them. If a scheme sounds too good to be true, it probably is!

There are other special charitable giving techniques beyond the usual gifts of cash. These include, among others, a bargain sale to a charity, a gift of a remainder interest in your residence and a transfer to a charity in exchange for an annuity.

For questions on charitable contributions or any other potential deductions for your taxes, please call our office at (214) 827-9118 to set up an appointment.

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IRS Regulations require that we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or for the purpose of promoting, marketing or recommending to another party any transaction or tax-related matter.