Be Charitable - but be Tax-Smart
Playwright Oscar Wilde once observed, "Charity…creates a multitude of sins." Although the sins to which Wilde was referring probably had more to do with lethargy and less to do with tax planning, some might consider it a sin for the benevolent-minded among us to line the IRS’ coffers more than necessary.
If you are pondering your next charitable move, it may be worth your while to try to be tax-smart about it. First, however, be aware that income tax deductions for charitable contributions are only permitted if you can itemize your deductions on Schedule A. Otherwise, your benevolence will go unrewarded by the IRS. A few basic tips…
You may deduct your charitable contributions only to the extent they are directed toward a "qualified" organization. If you’re unsure if your target organization is qualified, check with the IRS. Consider donating appreciated stock you’ve held longer than one year. Doing so may allow you to deduct the full value of the stock while also avoiding the taxes associated with your profit on that stock. What if you’ve held that stock one year or less? Your deduction will then generally be limited to your cost of that stock. Avoid donating property whose value has fallen below its cost because your deduction will generally be limited to the property’s reduced value. In such cases, it may be better to sell the loss property, deduct the loss, and give the proceeds to charity. If your deductible expenses are not quite enough for you to itemize them, consider trying to time certain deductible expenses so that they fall into one tax year. Then, making your charitable contributions in those years will help ensure they too are deductible. Be aware that the deductibility of your contributions may be limited to a certain percentage of your income.
Although tax deductions are nice, one’s benevolence should probably have more to do with furthering some worthwhile cause and less to do with tax deductions. As Herman Melville reminds us in the classic, Moby-Dick, "Man is a money-making animal, which propensity too
often interferes with his benevolence." I’m with Melville – be charitable, but be tax-smart.
