As we turn the corner to December, many people are beginning to think about their year-end tax calculations and correspondingly, their available tax deductions.
The biggest available deduction in any one year is typically the charitable deduction. I find many do not realize the rules. Here are the big ones in brief:
1. In total, you may deduct up to 50% of your income each year from charitable gifts.
2. You may deduct up to 30% of your income in the form of a noncash asset (things like publicly traded stock, real estate, cars, collectibles, and closely held stock);
3. Even if an individual goes over the 50% or 30% levels, the deduction can carry over for another 5 years.
These are the basics, but in short, there’s a lot of room to increase your giving and take a deduction. Now is the time to evaluate whether you have publicly traded stock that has appreciated in value. That is a good candidate for deduction because not only do you get to deduct the fair market value, but you also don’t have to pay capital gains tax on anything donated.
On the other hand, the most missed tax deduction is the 30% of income non cash deduction. Are you planning to get another car? Give your old one. If you give it straight to a charity that can use it, you get to deduct the fair market value. On the other hand, the car can be sold and you can deduct the amount of what the car sold for. Look at real estate holdings as an option as well. For the business owner, you can also give shares in your closely held business.
With tax rates expected to go up in 2011, now is the time to make your gift. If you need to make the gift and have it available for future years, then donate to a donor advised fund. That way you get the deduction now, but preserve the opportunity to gift to your favored charity.
William F. High is the President/General Counsel of the Servant Christian Community Foundation (www.servantchristian.com). Servant’s mission is to inspire, teach and facilitate revolutionary biblical generosity. He may be reached at email@example.com.