Get the Most From Your Gift

Tax professionals weigh in on the smartest ways to be charitable.

One could say that finding the right financial strategy for your gift giving is similar to the way a football coach puts together a winning game plan, or perhaps the way a chess master orchestrates his way around the board.

In terms of tax advantages, the key to success in this game is finding the most beneficial ways to get the biggest bang for your donated dollar, and that means knowing the intricate, detailed rules. It’s a never-ending process, as CPAs and other financial advisors are constantly going to battle to ensure their clients are getting maximum benefits from their charitable gift giving. Whatever the gifted amount, it’s critical to know how the IRS will handle the details on specific donations well before the charitable gift is given to the recipient.

There are several tax-wise ways to donate, some with more tax savings than others. Among those high on the list are “Required Minimum Distribution” (RMD), and property and computer equipment donations, the latter of which will give back a 50 cent tax savings on every dollar donated.

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To begin with, to receive any tax benefits from charitable contributions, individuals must itemize their deductions, instead of taking the standard deduction. The standard deduction for married filing joint for 2015 is $12,600 and $6,300 for single. One of the most tax-effective methods is to make larger charitable deductions by transferring appreciated stock to a charity. “If a taxpayer owns stock in a corporation that he paid $1,000 for but it is now worth $10,000, he can actually give the stock to charity and get a $10,000 deduction,” explains Bill Potter, a CPA with Postlethwaite & Netterville.

Another planning technique, adds Potter, is to bundle charitable deductions into one year. “If you see that it looks like it might be better to take the standard deduction in 2016, you might delay your contributions and other itemized deductions until 2017,” he says. “If you don’t, your 2016 amounts, when combined with your regular 2017 deductions, could get you over the standard deduction amount.”

Safety in Securities

One of the best and easiest ways for donors to give more is by gifting long-term appreciated securities. “Gifting appreciated securities that you have held for longer than 12 months allows you to avoid capital gains tax and can reduce or eliminate net investment income,” says Andree Schneider, a financial advisor with Raymond James.

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Matthew Person, of the Person Huff CPA Group, agrees. “Monetary donations are always appreciated and easier to do for people who don’t own stocks or other securities.

Donors can also gift appreciated stock and receive a full write-off, like those available through a local community foundation. Individuals who gift highly-appreciated securities to a charity can avoid paying capital gains tax on the sale of those assets,” explains Schneider. Person adds, “Any long-term appreciated securities with unrealized gains — meaning they were purchased over a year ago, and that have a current value greater than their original cost — may be donated to a public charity. Following the donation, a tax deduction can be taken for the full fair market value of the securities, up to 30 percent of the donor’s adjusted gross income.

Some rebate programs are especially generous on returns, like Louisiana’s ACE Scholarship Donation Program. The ACE program is a mentor program for high school students and provides work experience in architecture, construction and engineering. With donations, “up to 5 percent of the funds can be used for administrative costs and the remainder goes toward tuition scholarships. Subsequently, the donor can be rebated 95 percent. In the year the donation is made, the taxpayer gets a charitable contribution for the full amount. In the year it is rebated, the taxpayer picks up the 95 percent amount as income. The net effect is that the donor gets a net tax deduction of 5 percent.”

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Estate Planning that Pays

“Charitable gifting can be an important part of estate planning,” says Schneider. “It is important to evaluate gifting strategies from a tax and estate planning perspective to realize the most benefit,” Schneider says.

It is also possible to use gifts to generate tax write-offs and/or provide retirement income — a guaranteed cash flow for the remainder of a person’s life. You can make direct monetary contributions to a charity, which offers no additional benefit to the charity, or you can donate an annuity to a charity. The individual seeking a tax deduction can purchase an annuity for a charity, where the charity is the owner, and the charity can take income from the annuity either immediately or deferred.  With some annuities, the guaranteed income base can increase up to 7 percent a year. The individual can remain as owner of the annuity and make the charity the beneficiary of the annuity upon the death of the owner.

Thanks to Congress’ newly-approved permanent provision, an easy way to support charitable causes and get a tax break while meeting the tax requirements for IRAs is through “Qualified Charitable Distributions” (QCD’s). Anyone 70-and-a-half years takes a “Required Minimum Distribution” (RMD) and can have the IRA administrator transfer up to $100,000 annually to a qualified charity.

“You may have your RMD made payable directly to the charity, and then designate it as a qualified charitable distribution on your tax return,” says Person. “By doing so, you’ll have satisfied your distribution requirement and you won’t have to pay income taxes on that money. He advises, however, that donors be aware of the restrictions attached to such a move. “You can’t also claim the qualified distribution as a charitable tax deduction. That amount is simply excluded from your taxable income.”

Potter offers this example: “Suppose Granny has taxable income of $50,000 before taking her RMD from her IRA, which is $7,500,” he says. “Suppose further that she tithes to her church so her annual pledge would be $5,000.  If she has $5,000 of the RMD paid directly to the church, she will avoid $1,250 of tax on that amount and still get her full standard deduction.”

Technology Makes a Great Gift

One of the biggest returns available to Louisiana corporations and individuals is from donations of technology equipment to qualified educational organizations. In these cases, the taxpayer receives both a federal and state income tax deduction, plus a credit against their Louisiana tax liability.

“We have many clients avail themselves of this planning technique; I have done it personally,” says Potter, who goes on to explain. “Suppose Taxpayer A donates $10,000 worth of computer equipment to her child’s school. Assume A is in the top federal and LA income tax brackets (39.6 percent and 6 percent). A’s total tax savings for this gift would be about $7,200. The Louisiana Department of Revenue has even ruled that a school can accept cash donations earmarked for technical equipment purchases and these can qualify for the credit as well. The school must give the donor an executed Form R-3400, which is filed with the donor’s state income tax return.”

“Before donating to any charity, learn more about that charity, their purpose, and the percentage of money donated which goes towards their mission.” -Matthew Person, managing member, the Person Huff CPA Group

Giving computer technology, Person adds, is a relatively simple way to help both yourself and your favorite cause. “Business owners can deduct the un-depreciated value of the computer, and individuals can deduct its current market value,” he says.

Take Care to Play by the Rules

Meanwhile, tax advisors are growing more concerned about increased scrutiny by the IRS when it comes to charitable deductions. Over the past several years, the IRS has routinely disallowed charitable deductions by taxpayers who do not follow the detailed rules.

“There was a recent case where a couple had donated $21,000 in checks to their church,” says Potter. “The IRS disallowed those donations because the church did not give them a contemporaneous receipt/acknowledgment that stated that no goods or services were received by the taxpayer from the church. During the course of the examination, the church gave the receipt, but the IRS and the court said “contemporaneous” means it must be received prior to the time for filing the tax return. It was a harsh result.”

To stay on top of the rules, check with your tax advisor, or go to and get a copy of the IRS Publication 526 – Charitable Contributions. “It is important to work with your financial planner and tax adviser when reviewing charitable gifting strategies,” stresses Schneider.

You should also make sure you know exactly where your donated dollars are going. “Not all charities are created equal, and not all use your money for their stated purpose,” warns Person. “Before donating to any charity, learn more about that charity, their purpose, and the percentage of money donated which goes towards their mission.”

*The information contained herein is intended for informational purposes only. It is provided with the understanding that it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.


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