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What to Give
Below you'll find a brief overview of some of the
most common types of assets that you can donate to charity, and some of the
tax implications. Consult a professional advisor for more details.
CASH & CASH EQUIVALENTS
We're
all familiar with donating cash to charities. If you itemize your deductions
on your personal federal income tax return, you may take a charitable gift
deduction for the amount of your charitable gift of cash and cash equivalents
(certificates of deposit, savings bonds, money market fund, etc.). For details,
see A Comparison of Options for Giving. If you can't take the entire deduction
in the first year because of this limitation, you may carry the balance forward
into the next five years.
When savings bonds, certificates
of deposit and other ordinary income assets are given to charity, the recipient
charity, unlike the family, will not have to pay tax on the gain in those
assets. You can name the charity as the primary or contingent beneficiary,
or as a partial beneficiary.
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PUBLICLY
TRADED SECURITIES
You
can transfer ownership of appreciated securities owned for at least one year
to a charity and receive a deduction for the average value of the security
on the day of the transfer. When the security is sold by the charity, neither
you nor the charity will have to pay capital gains tax. You receive the benefit
of having your gift valued at fair market value, including the appreciation,
for the purpose of determining your charitable deduction. For these long-term
capital assets, you may claim an income tax charitable gift deduction for
the year in which the gift is made. For details, see A Comparison of Options
for Giving. If you can't deduct the full fair market value of the gift in
the first year, you may carry the balance forward for the next five years.
If the securities have been owned less than one year, the charitable deduction
is based on your cost basis in the security.
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CLOSELY HELD
SECURITIES
For
owners of closely held securities, such as Sub-Chapter S Corporation (S Corp)
stock, it is possible for companies to give S Corp stock, and for private
and community foundations to own S Corp stock. There are limitations that
accompany ownership of such stock, and the recipient organization(s) should
be encouraged to consult their professional advisors prior to accepting such
a gift.
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LIFE INSURANCE
By
designating a charity as the beneficiary of a new or existing life insurance
contract, you can make a significantly larger charitable gift than may be
possible out of your current assets. And, if you make a charity the owner
of the contract, you can deduct the premiums as you pay them. Or, if you
would rather retain the right to change beneficiaries on the contract and
don't care if you can't deduct the premium, you can remain owner of the contract
and simply name the charity as partial, sole or contingent beneficiary.
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REAL ESTATE
You
can make outright gifts of real estate to a charity. If you have owned the
donated property for at least one year, both you and the charity can avoid
paying capital gains taxes on the appreciation in the value of the property.
Outright gifts of real estate will often result in an income tax deduction
equal to the fair market value of the property, as determined by appraisal,
but there are some situations where this may be reduced.
It's possible to make a gift of your
personal residence, vacation home, or farm to a charity and retain a "life
estate" in the property, allowing you to retain rights to use or rent out
the property until your death. You deed the property directly to the charity
subject to your retained life estate, receive an immediate income tax deduction
for a portion of the appraised fair market value, and have the comfort of
knowing that the property will be excluded from probate.
If the donated real estate is a long-term
capital asset, you may claim an income tax charitable gift deduction for
the donation. For details, see A Comparison of Options for Giving. If you
can't deduct the full fair market value of the gift in the first year, you
may carry the balance forward for the next five years.
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PERSONAL
PROPERTY
Personal
property, such as artwork, cars, clothing and jewelry, can be given to charity.
But unless the charity will actually use the property in connection with
its stated mission, you can deduct only your cost basis, not the fair market
value, of the property. (Note: It is important to ask the recipient of your
gift whether or not your gift is being used in connection with its stated
mission.) If the property has depreciated in value from the original cost,
which is typically the case with cars and clothing, then the deduction will
be its current value.
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RETIREMENT
ASSETS
Distributions
from certain kinds of retirement assets-such as individual retirement accounts
(IRAs), tax-sheltered annuities, and 401(k) and 403(b) plans-are subject
to income tax and may be subject to generation-skipping taxes and estate
taxes. However, gifts of these assets will not be taxed if they are paid
directly to a charity as beneficiary. You can designate all or a certain
percentage of your retirement assets to go to charity. It is important that
you seek professional advice to determine how your retirement asset distributions
will be affected by naming a charity as a beneficiary.
Under current law, if you wish to
make a gift of IRA assets to charity, you must first withdraw the assets,
recognize the distribution for income tax purposes, contribute the funds
to charity, and then claim an income tax charitable deduction to mitigate
the income tax liability. Note: there may be penalties for early withdrawal
of your IRA assets.
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IN-KIND GIFTS
& PRO BONO SERVICES
In
addition to cash contributions, some companies donate their products to charity-often
referred to as "in-kind" gifts-or offer their services on a free "pro bono"
basis. Many companies have products that can be used by nonprofits, including
products from current inventory, obsolete merchandise, returned or slightly
damaged goods, computers, or office furniture and equipment. Nonprofits can
also benefit from services provided by a company or its employees, such as
printing, legal representation or publication design.
A company's charitable donation of
its products can qualify for a charitable deduction. However, limitations
exist on what and how much can be deducted. The rules are complicated and
require careful prior analysis by corporate or outside counsel. The value
of staff time donated to a nonprofit organization is not deductible, although
out-of-pocket expenses (gas, mileage, meals, etc.) for such volunteer work
can be deducted within certain limits.
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VOLUNTEER TIME
In
addition to giving dollars to charity, another important way to help your
community is to give of your time. Nonprofit organizations are in great need
of capable, committed volunteers, and your volunteer contributions can leverage
the financial contributions you make to an organization. Here are some resources
that can help you find the right volunteer opportunity for you:
Reference: Connecticut Council for Philanthropy
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