Countless people make charitable contributions each year. Some people give cash. Some people give their old car, others the very shirts off their backs. Some give shares of stock, and others give their time.
The rules vary as to how and whether each type of gift is deductible.
A gift of your time or services, while laudable, is not deductible. However, you can deduct out-of-pocket expenses incurred in a charitable endeavor, if they are: 1) unreimbursed, 2) directly connected with the services, 3) incurred only because of the services you gave, and 4) not personal, living, or family expenses.
If you make a contribution and receive something in return, you can deduct the value of the contribution to the extent it exceeds the fair market value of what you receive in return. For example, if you pay $80 for tickets to the Red Cross charity screening of Star Wars, the tickets would be deductible to the extent they exceed the normal ticket price for movie tickets.
Generally, the deduction for gifts of tangible personal property, such as cars, furniture, paintings, etc., is limited to the lower of your cost basis or the propertys fair market value at the time of the contribution. For example, if you pay $500 for a rare painting and it appreciates to $5,000 and you contribute it to the Kidney Foundation, it is deductible only to the extent of $500.
However, if the gift is related to the charitys exempt purpose, you can deduct the full fair market value of the item, including your original cost basis and appreciation that would otherwise have been taxed as long term capital gain. For example, if you contributed the same painting to the National Gallery of Art, you could deduct $5,000 rather than the $500 you were allowed for contributing it to the Kidney Foundation.
It is also necessary to keep adequate records to substantiate your deduction. For non-cash contributions under $250, you must keep a receipt from the charity showing: 1) the name of the charity, 2) the date and location of the contribution, and 3) a reasonably detailed description of the property. For non-cash contributions of at least $250 but less than $500, you must get an acknowledgement from the charity that meets the above requirements and 1) is in writing, 2) contains a statement of whether the charity gave you anything in return for the contribution and, if so, its value, and 3) is obtained before the earlier of when your return is due or when you actually file it. If the contribution is over $500 but not over $5,000, you must meet the above requirements, your records must indicate: 1) how you obtained the property, 2) the approximate date you obtained or created the property, and 3) your cost or other basis of the property and whether youve held it more or less than one year. If the deduction is over $5,000 you must meet the same requirements above and you must also obtain a qualified written appraisal of the property.
For further information, you may wish to refer to Internal Revenue Service Publications 526 and 561, which may be obtained on their web site at www.irs.gov. This is a complex area. A gift of the same property to different organizations can result in different tax consequences. Improper documentation can jeopardize the deduction altogether. A qualified estate planning attorney can help you maximize the tax benefit of your charitable gifting.
In planning your estate, the best course of action is to seek the assistance of an attorney whose practice is focused in estate planning