Gifts That Keep Giving: Plan Gifts and Donations for the Coming Year That Will Lower Your Tax Liability

By Hermans, Donna | Black Enterprise, December 1995 | Go to article overview

Gifts That Keep Giving: Plan Gifts and Donations for the Coming Year That Will Lower Your Tax Liability


Hermans, Donna, Black Enterprise


Plan gifts and donations for the coming year that will lower your tax liability

BY NOW, YOU'VE PROBABLY FINISHED your last-minute shopping and bargain hunting for this season of gift giving. But it's still not too late to select gifts that can ensure a return on your investment. Why not make contributions to qualified charitable organizations and write off the donations on this year's tax returns?

Too few taxpayers take advantage of this "gift" from the Internal Revenue Service. In the 1993 tax year, taxpayers contributed $103 billion to qualified charitable organizations, yet only $67 billion of that was claimed. Kevin Coleman, a certified public accountant in Culver City, Calif., says many people lose out on these deductions because they don't keep accurate records, or they're simply unaware that such donations can be deducted for tax credit.

There's still time to plan a gift-giving strategy that will help minimize your tax liability. Before you begin mapping out your strategy, make sure the recipients of your gifts have current nonprofit status. Simply ask the association directly and review a copy of their 501(C3) documents--government certification of their charitable status. The IRS also publishes a list of qualified organizations.

Be aware that the IRS limits the annual amount each taxpayer can write off in charitable deductions. If you've already exceeded that amount-50% of your adjusted gross income--the balance can be carried forward to the next tax year. Anthony Elliott, a certified public accountant based in Simi Valley, Calif., says that ideally you should map out a strategy with a professional. Nonetheless, here are some gift-giving ideas you can implement on your own that could lower your debt to Uncle Sam.

* The gift of time. You may have already planned on volunteering some of your time at homeless shelters or soup kitchens. Keep records of your out-of-pocket expenses. Money spent on uniforms and unreimbursed car outlays, at a standard rate of 12 cents per mile, qualify as legitimate write-offs.

* Yard sales. This may be a good time to clean out your closets, garage and basement. Rather than throw out that too-small skirt or the recliner that doesn't match the sofa, donate those items to charitable organizations.

Of course, written records from the receiving organizations are vital. New laws passed last year require organizations to issue receipts for cash and noncash donations valued at $250 or more. Such receipts should list the items donated and their current market value. it may be up to you to get the value of such goods determined.

* A stock answer. Few people take advantage of donating appreciated capital gains type properties, such as stocks and bonds. Most people just sell the properties and then donate the cash. If done that way, the donor ends up paying capital gains taxes; a better way is to donate the stock directly. A direct donation allows you to give more to the charity, since the 28% capital gains tax isn't levied, and write off a larger amount.

Appreciated capital gains type properties must be held for a year before being donated.

* The gift of cash. If the requisite paperwork and record keeping needed to satisfy the IRS seems daunting, you can always contribute cash, which doesn't require appraisals or additional documentation. Keep in mind, though, that your canceled check is no longer proof of your contribution. A receipt from the charitable organization is also needed for donations of more than $250.

Coleman suggests that even the cash-strapped can make such contributions with borrowed funds. …

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