Since many charitable donations are tax-deductible, making a donation to a charity is a popular choice at the end of the year, when people are starting to think about their tax liabilities. Whether you give in the form of cash, investments, or items of personal property, there are tax implications for all types of donations. While cash is perhaps the easiest means of making a charitable donation, it isn’t always the best way to minimize your tax liability. Rather, you should consider all of your options before choosing a way to make your donation and be aware of the tax consequences of your choice.
If you choose to donate tangible items or personal property to a charity, such as used clothing, canned goods, or used appliances and kitchenware, you must get a receipt for the description of the items. The receipt also must acknowledge whether you received anything in exchange for your donation, such as a t-shirt or tickets to an event. If you do receive a gift for your donation, you typically may only deduct the value of the items that you donated, less the value of the donation. In some cases, you may have to get a professional appraisal of a piece of personal property in order to place a value on it for tax purposes.
The most advantageous way to avoid taxes when making charitable donations is to donate stock appreciated for more than one year rather than cash. A gift of appreciated securities will allow you to take a charitable deduction on your taxes for the full value of the donation. However, keep in mind that a donation of short-term stock only allows you to deduction your cost basis, or your cost for tax purposes, which is why donation of long-term stock is more advantageous from a tax standpoint. Although there may be limitations on your charitable deduction relative to your gross income, you can carry over any excess to following years. Furthermore, you will avoid paying capital gains tax, which you would pay if you had sold rather than donated the stock.
Charitable donations are often present in an estate plans, but they take some special planning in order to avoid large tax liabilities. The tax rules with respect to charitable donations can be complicated, and it is important to get the proper advice about your tax deductions. Estate planning is an important issue for all individuals, but especially for those who want to both preserve assets for the next generation and contribute to worthy causes. At Legacy Law Center, our goal is to ensure that you have an effective estate plan in place to meet your loved ones’ needs and carry out your own objectives, as well. We have the skills and knowledge that you need to make the appropriate decisions about estate planning. Call your Michigan long-term care attorneys at (734) 995-2383 and schedule an immediate appointment.
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