The holiday season is a great time to support charities and those in need. It is wonderful to know you are making a positive impact in the lives of others through charity and donation. At the same time, it is always nice to enjoy an added tax benefit with charitable giving.
As a financial services expert, Shawn Weera helps his clients understand these benefits while spreading a little extra holiday giving and cheer.
The higher the appreciation of a stock or an asset, the higher it’s potential tax benefit. Here are some tips from Shawn Weera to follow to enjoy tax benefits for your charity.
The first thing you have to note is to ensure that the charity you decide to donate to has tax-exempt deductions. To know this, you can use the IRS Select Check tool. Religious organizations such as churches, synagogues, temples, mosques, and others are also eligible for tax-deductible charity, even though they might not be available on the IRS database.
Charity deductibles apply the year the charity was made.
Charity donations are tax deductible during the year that they are made. This implies that if you decide to make a contribution by the end of the year (say 2017) and didn’t pay until the following year (2018), the donation is deductible in 2018.
In order to claim charitable deductions, you must be able to itemize deductions on your tax returns. It is quite complicated though as itemizing only pays off when all your itemized deductions that include mortgage interest, real estate taxes, and a few health expenses added up are more than the standard deduction available for those who do not itemize. The standard deductions are set at $6,300 for individuals while couples filing a joint return will pay $12,600. In case you have lots of deductions, then you can face deduction limits even though it is small. Shawn Weera works with clients individually to understand their unique situations and builds a plan from there.
If you decide to itemize your charity, then you must have documents that support your gifts. Previously, it used to be just putting down the value of each gift but things are different now. Any item that is worth more than $250 must be acknowledged by the charity organization, the written acknowledgment will generally describe the gift and its value. When the gift is monetary, having a bank statement or a canceled check is also helpful.
When you decide to donate a car, a bus or a truck, your deduction happens after the charity organization sells the vehicle and reveals the amount it got. This is usually less than the Blue Book value you anticipate. The charity organization will notify you once the vehicle has been sold.
Donate stocks or assets that have appreciated.
Donating shares of highly appreciated stock can be very beneficial to you. Let’s say you have 200 shares of a particular stock which had appreciated from $100 per share to $200. If you decide to sell all 200 shares, you will get $40,000, you will be left with $34,000 to donate to charity after you have paid the usual 15% long-term capital gains tax on the stocks. By giving the shares to charity rather than selling them, you are passing the entire $40,000 to the charity and will get a deduction on the total $40,000 also. Charity organizations pay no capital gains tax after they sell the shares.
In the case where your shares have depreciated, then selling them to claim a tax loss and then later giving out the proceeds charity and claiming a tax break is the best option.