As Congress contemplates sweeping tax reforms for individuals, virtually everything is on the table. But at least one itemized deduction is often considered a “sacred cow” that can’t be touched.
In all likelihood, the deduction for charitable contributions, currently claimed on lines 16-19 on Schedule A of Form 1040, will be preserved by our nation’s lawmakers.
Charitable donations can take many forms, but here are five common opportunities:
1. Monetary contributions. If you donate cash or make a cash-equivalent contribution to a qualified charitable organization, your generosity is generally rewarded with a deduction for the full amount. The limit for all annual donations, including cash gifts, is 50 percent of your adjusted gross income (AGI). Any excess may be carried over for up to five years.
However, the IRS imposes strict recordkeeping rules for monetary contributions. For a cash donation of $250 or more, you must obtain a contemporaneous written acknowledgment from the charity. Usually, the charity is only too wiling to comply with this requirement.
2. Gifts of property. Furthermore, you may donate property you own, such as securities or artwork, to a charity. Most importantly, if the property would have qualified for a long-term capital gain had you sold it instead of donated it – in other words, you’ve held it longer than a year – you may deduct its full fair market value on the date of the donation. Therefore, the appreciation in value while you owned the property remains untaxed forever.
Note that gifts of property must be used to further the charity’s tax-exempt purpose. For example, if you give a painting to a museum, it must be prominently displayed where the public can see it. Similarly, if you donate clothing to a charitable organization like Goodwill, it must be made available to potential recipients. Also, the current annual deduction for gifts of property is limited to 30 percent of your AGI. Finally, an independent appraisal is required for donated property valued above $5,000.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.