Gifts

| January 27, 2023

Donating to charity is not a tax dodge. Yes, giving to charity can reduce our taxes, which may provide leverage for our gifting plans, but the money we lose in making a gift is usually more than the taxes we might save by giving our money away. In making this statement I am not ignoring the people who try to scam the system. Charitable giving is not unique in this regard, and I am addressing this blog to those who wish to maximize their charitable intent.

We can divide our gifting into those made during our lifetimes and charitable bequests. Today, I shall address lifetime gifts. Either way, we need to identify what to give. We can give cash, objects, securities, and so forth. Our goal should be to use the cheapest funds available to us. For example, we frequently work with people who are cash poor, but sell appreciated securities to contribute to their church, synagogue, mosque, alma mater, local library, hospital, and so forth. This is particularly true with gifts to religious institutions, which many people make weekly.

Appreciated assets should be among the first assets considered when making a charitable gift. You may wish to make one annual gift instead of many. When making a gift of appreciated assets, it is the charity that sells the asset, and because they should be tax-exempt, no capital gains taxes will be due. If you have a concentrated position in the company that you work for, consider making a gift of stock. Gifts of publicly traded stocks are very easy to make, and the rules are simple. Deductibility is more complicated as the following chart shows.

Charitable Income Tax Deduction-Adjusted Gross Income (AGI) Limitations:

Property Gifted

Public Charity

Private Foundation

Cash

60% of AGI

30% of AGI

Securities held for less than 1 year

50% of AGI (cost basis limit)

30% of AGI (cost basis limit)

Securities held for more than 1 year

Fair market value up to 30% of AGI

Or

Cost Basis up to 50%

Fair market value up to 20% of AGI

Or

Cost Basis up to 30% of AGI

Use related tangible personal property held for more than 1 year

Fair market value up to 30% of AGI

Or

Cost Basis up to 50% of AGI

Fair market value up to 20% of AGI

Or

Cost Basis up to 30% of AGI

Tangible personal property (unrelated use)

50% of AGI limited to cost basis

30% of AGI limited to cost basis

Life Insurance

Cost basis up to 50% of AGI or replacement value up to 30% of AGI

Cost basis or replacement value up to 30% of AGI


Tax rules change frequently, and I am using information that I believe to be current. Please discuss these ideas with us or a tax advisor before taking any action.

Next week I shall discuss charitable trusts.