With the holidays in full swing and the end of the year quickly approaching, now is a great time to consider many those last minute charitable gifts. Whether it’s making one last larger gift as part of a recurring charitable contribution, or making a one-time gift to a new favorite charity, end of the year giving can help spread some holiday cheer, as well as helping out your income tax bill in the process. As a Houston estate planning attorney, one of the questions I get concerns the best way to make charitable gifts. There are several different ways to make gifts to you charity, and choosing the right one can make a big difference for both you and the charity.
Cash – Perhaps the easiest and most common way to give to a charity is to donate cash directly to the charity, usually in the form of a check or electronic bank transfer. When you donate cash to a public charity that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code, you are allowed to deduct the amount of the gift from your income, which means you will not have to pay tax on that amount when you file your income tax return for the year.
Used Items – Another way to donate to charities is to donate used items to a charity that can resell them or use them for their exempt purposes. A good example of this is Goodwill, who will accept use items from contributors and resell them in a thrift shop run by the organization. You get a tax deduction for the contribution. However, if you plan on using the contribution for a tax deduction, make sure you get a receipt from the organization to support the amount of the deduction.
Appreciated Assets – An often overlooked way to make charitable contributions is to donate appreciated assets, such as stock. For example, if you have stock that is worth $1,000 for which you paid $600, you can donate the stock directly to the charity and avoid paying capital gains tax while getting a deduction for the full value of the stock. On the other hand, if you sold the stock, you would have to pay capital gains on the sale, the charity would only receive the net value of the sale, and you would only receive a deduction for the net value. Donating appreciated assets can create a real win-win situation for both you and the charitable organization.
Regardless of the method you choose for charitable giving, the income tax deduction is only available if you itemize deductions on your tax return, and your deduction may be limited depending on how much income you have for the year. Your accountant or estate planning attorney should be able to explain the specifics to you, so it is a good idea to check with your advisors when making charitable contributions.