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CHARITABLE PLANS AND ORGANIZATIONS
1. Why People Give to Charities?
2. Tax Considerations
3. Income Tax Deductions
4. Partial Interest Gifts
5. Estate and Gift Tax Deductions
6. Keeping Philanthropy in the Family
7. Fundraising Strategies
8. Charitable Giving Techniques
Contact us for your Charitable Planning needs.
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Thinking of giving to your favorite charity? Let us help structure your contributions to maximize your personal
and financial benefits.
Better yet, are you considering starting a charitable organization of your own? We can
help you venture into the fulfilling world of nonprofit organizations. We’ll complete and file your federal, state
and local forms, and handle any appeals while guiding you through the maze of qualifying as a charitable organization.
Are you currently involved with a charitable organization? Let us help you establish solid short-term, mid-term and
long-term fundraising and outreach strategies to maximize your charity’s benefit to the public. Too many charities
are not set up to help their donors maximize their contributions and applicable deductions. We'll help you launch strategies
that will bring your existing donors closer to your organization, while attracting new contributors and benefactors to your
cause.
In the meantime, here is some helpful information for your review.
1. Why People Give to
Charity
There's a common misconception about why people give to charity. A lot of people think it's because of
the tax deduction the IRS and state governments allow. But the tax deduction doesn't eliminate the cost of charitable giving,
it only reduces it. For example, if you give $1,000 to charity and you're in the highest federal income tax bracket (35%),
you'll save $350 in taxes. You still have to part with $650 even when the effect of the tax deduction is figured in. Of course,
in the lower brackets, the tax incentive is even less. There are limits on the amounts you may deduct in any one year as well.
There must be something more basic at work than tax savings. And there is. Studies of philanthropic behavior show
that the most important reason why people give is their commitment to the mission and the specific programs of an organization.
Every other reason, including tax incentives, is dwarfed by the importance of philanthropic motives. The personal satisfaction
of supporting worthwhile causes drives charitable giving. Many philanthropic individuals also use charitable planning tools
to pass their values down to their heirs, and help keep their children and grandchildren personally involved in the parents'
favorite organizations.
2. Where taxes become important is in—
• reducing the donor's tax
bracket,
• motivating the marginal giver who needs a little "push" to make a financial commitment, and
• increasing the size of a gift.
3. INCOME TAX CHARITABLE DEDUCTION
The deduction for a particular
donor depends on a constellation of factors, including:
• the donor's adjusted gross income (AGI)
• any
net operating loss carryback the donor may have
• the type of property contributed
• the donor's holding
period in the property contributed
• whether the property would produce gain if sold, and what kind of gain
• the type of charitable organization receiving the contribution
• in certain cases, the use to which the
charity puts the gift property
• the fair market value of the gift property or, in other cases, the donor's tax
basis in the gift property
• the statutory limitation on the deduction applicable to the particular type of gift
• any special election the donor may make with respect to the deduction.
4. Charitable Gifts of Partial
Interests
Often a donor will not give charity his or her entire interest in property, but rather a "partial
interest." Strict rules must be met for the value of the charity's partial interest to be deductible in this situation.
For example, charitable remainder trusts (CRT's) are recognized exceptions to the partial interest restrictions.
When
a qualifying partial interest gift is made, the value of charity's interest must be determined (since it is less than the
full value of the property).
5. ESTATE AND GIFT TAX CHARITABLE DEDUCTION
What if we didn't have to
worry about any restrictions on the charitable deduction? That's basically the way the estate and gift tax charitable deduction
operates-
Type of property contributed? Doesn't matter, it's fully deductible.
The charity's use of
the property? Doesn't matter.
Type of charity? Doesn't matter, as long as the charity is qualified by the IRS.
Deemed amount of contribution? It is always the same as the actual amount - the fair market value either at date
of death or the alternate valuation date.
Percentage limitations on the deduction? There aren't any—if you
leave 100% of your net estate to charity, it's all deductible.
This approach to deductibility also applies to the
gift tax charitable deduction.
6. KEEPING PHILANTHROPY IN THE FAMILY
Many charitable people choose to
teach their children philanthropic values by forming family run charitable organizations. By using vehicles such as Private
or Family Foundations, these donors keep their charitable contributions "close" to the family while still giving
it away to charity. Donors and their heirs run these family foundations for decades, allowing the donor's children to "earn
and learn" values by both managing the organizations assets and systematically donating those assets to a multitude of
charities over many generations.
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