The right thing: making charitable contributions.The rewards of giving to charity are many. For starters, clients control when and how to reduce a tax bill and effectively reduce the actual cost of the gift. Cash donations, as long as the actual amount of the donation is substantiated, will not result in an IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. challenge. However, donations of objects, such as fine art and collectibles, are always problematic.
Clients will generally receive a higher tax deduction Tax deduction
An expense that a taxpayer is allowed to deduct from taxable income.
See deduction. when they use long-term appreciated property (held more than one year) to fund contributions and avoid capital gains tax. Some property may not be eligible for a deduction at appreciated fair market value, such as securities whose fair market value is less than the cost, tangible personal property, vehicles, and ordinary income property.
Securities with a cost more than fair market value. A client's deduction will be limited to cost, and the client will lose the capital loss tax benefit, so donating these securities is just a bad idea.
Tangible personal property. When a public charitable organization uses donated property in its exempt function (a painting given to a museum, for example), clients can potentially realize an estate tax savings and receive an income tax deduction, the size of which depends on the nature and appraised value of the property donated and their personal tax situation. For property held long-term (longer than 12 months) as a capital asset, a client may generally deduct its full fair market value, as determined by a qualified appraisal (up to 30 percent AGI (Artificial General Intelligence) A machine intelligence that resembles that of a human being. Considered impossible by many, most artificial intelligence (AI) research, projects and products deal with specific applications such as industrial robots, playing chess, and five-year carryover), provided that the donated object is related to its charitable mission, such as a museum or educational institution that normally has a collection of similar paintings, silver or sports memorabilia. All of the appreciated value of the donated art object will be lost as a charitable deduction if the related use rule is not satisfied.
Note that for works donated by the artist, the income tax charitable deduction may be limited to the actual cost of materials. For dealers, the income tax charitable deduction may be limited to the actual cost of works of art held as inventory.
For deductions of art objects and other personal property over $5,000, Form 8283, Section B, must be completed. This is signed by the donor, the person donating the piece and the appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property.
Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market . If your client donates art objects valued at $20,000 or more, however, the client must attach a complete copy of the signed qualified appraisal.
Vehicles. As of Jan. 1, 2005, the tax deduction on donating cars, boats and airplanes worth more than $500 is limited to the amount the nonprofit organization Nonprofit Organization
An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well.
Examples of non-profit organizations are charities, hospitals and schools. receives once the car is resold. The nonprofit organization will be required to send the donor a letter informing the donor of the resale and the value the donor can report to the IRS.
Ordinary income property. The deduction for ordinary income property is the lesser of fair market value or its basis.
These examples are just a few of the variety of issues when clients plan to donate property to charitable organizations. The total value of a charitable contribution deduction charitable contribution deduction
An itemized income-tax deduction for donations of assets to Internal Revenue Service-designated organizations. Certain qualifications on this deduction apply, such as a contribution limit of 50% of a taxpayer's adjusted and certain other itemized deductions may be limited, depending on your client's adjusted gross income and the amount and type of donation.
There are many other estate planning Estate Planning
The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death.
Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the options available which are beyond the scope of this article, such as charitable remainder trusts charitable remainder trust (Charitable Remainder Irrevocable Unitrust) n. a form of trust in which the donor (trustor or settlor) places substantial funds or assets into an irrevocable trust (a trust in which the basic terms cannot be changed or the gift withdrawn) , charitable remainder unitrusts, pooled income fund trusts, charitable lead trusts Charitable Lead Trust
A trust designed to reduce beneficiaries' taxable income by first donating a portion of the trust's income to charities and then, after a specified period of time, transferring the remainder of the trust to the beneficiaries. , charitable lead unitrusts, and charitable annuities. I strongly encourage clients to open a dialogue with charities, and obtain the advice and assistance of attorneys and CPAs experienced in charitable donations of personal property.
Phyllis Bernstein, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , is president of Phyllis Bernstein Consulting, Inc. in New York City New York City: see New York, city.
New York City
City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . Contact her at Phyllis@pbconsults.com.