Do you have a plan for your Charitable Giving?
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Tulsa is known and recognized for the long standing generosity and active charitable giving throughout the year with December as the most visible and active time of year. In fact, Philanthropy.com has indexed cities throughout the US and Oklahoma has proudly demonstrated a consistent and generous philanthropic commitment and specifically one Tulsa zip code was also noted to have given well above the national average with 21.6 percent of their discretionary income donated to charitable giving. See the full interactive map here: Philanthropy.com.
With such an active philanthropic lifestyle present in our community, it’s important to note that gifting and charitable donations made at the end of the year can offer multiple benefits and long-term rewards if made with some thought and a plan.
Taxpayers who itemize their deductions are allowed an income tax deduction for charitable contributions which are actually paid during the taxable year. For tax purposes, a charitable contribution is a contribution to a charitable organization made without expectation of commensurate benefit.
Plan Your Charity Budget
Decide each December what your following year’s donation total will be, and allocate specific amounts from that to a limited number of preferred charities. This will also keep you from getting on too many lists for repeated appeals. But leave some funds unallocated to donate for causes you don’t know about in advance, such as emergency disaster appeals, or sponsoring a friend who is running a race. Adjust upward accordingly if things go better than expected financially that year with the goal of maximizing the benefit of your charitable contributions deduction.
Capital Gain Property
Gifts of appreciated property often prove advantageous from a tax standpoint because capital gain is usually not required to be recognized when the property is contributed, and you receive a charitable contributions deduction for the entire value of the property. Because all the assets you are thinking of donating have been held by you for longer than one year, these comments will be limited to the impact of gifts of long-term capital gain property. If you subsequently decide to contribute any property that would not generate a long-term capital gain if sold rather than donated (i.e., held for less than one year), there are additional considerations. The starting point for determining the amount deductible for a contribution of appreciated capital gain property is the fair market value of the property.
There are, however, two significant limitations on the amount that a donor may deduct:
Capital Gain Reduction: Certain contributions must be reduced by the amount that would have been long-term capital gain if the property had been sold instead of contributed. Such a reduction is required for: (1) gifts of tangible personal property with a use unrelated to the exempt purposes of the recipient organization; (2) most gifts to private foundations; (3) gifts of patents, copyrights, trademarks, and similar property.
Applicable Percentage Limitation: The maximum charitable contributions deduction for any taxable year is limited to a certain percentage of a donor’s adjusted gross income. The applicable limitation depends on the identity of the donee, the form of the gift, and the type of property contributed. For an outright contribution to a public charity of capital gain property, which is not required to be reduced as discussed above, the controlling percentage limitation is 30%.
The first required reduction does not apply in your situation because you are considering gifts of intangible personal property and real property. Moreover, State University is a public charity and not a private foundation.
With regard to the second reduction, the maximum deduction for your aggregate gifts of such property for the year of contribution would be limited to 30% of your adjusted gross income. Amounts in excess of the 30% limitation may be carried forward and used in the succeeding five tax years.
Charitable contributions are not deductible unless they are substantiated in the manner prescribed by the IRS. The extent of substantiation required depends on the type and claimed value of the property donated.
All contributions of $250 or more must be substantiated by a written acknowledgment from the donee organization before a deduction is allowed. The acknowledgment must state the amount of money or description of property and whether any consideration was given in exchange for the contribution. Thus, you must be sure to obtain such an acknowledgment at the time you make the contribution to State University.
For property, other than publicly traded securities, with a claimed value exceeding $5,000, a donor must obtain a qualified appraisal to substantiate the value of the property. A qualified appraisal is an appraisal prepared by an independent appraiser that contains specific information about the property, the value of the property, the valuation method and the qualifications of the appraiser. A summary of the qualified appraisal, which must be signed by the appraiser and the donee, is required to be attached to the donor’s tax return. Less stringent substantiation requirements are imposed in the case of gifts of publicly traded securities and gifts of property not exceeding $5,000 in value. The question of valuation of contributed property should not be taken lightly. If the claimed value is excessive, a donor may be subject to an overvaluation penalty as well as other sanctions.
When do you plan your giving? Do you decide before the year starts or do you prefer to select your giving opportunities as the year progresses? Let us know and remember to post any questions you may have about charitable giving or give us a call at (918) 301-1100.