Tax Tips from Stu Steinberg – CPA, National Speaker & Financial Advisor
“Celebrating 25 Years in the Business”
Using the Schedule A of IRS form 1040, taxpayers are allowed to write-off cash and items donated to qualified charities. The deduction is limited to 50% of Adjusted Gross Income and other items are subject to a 30% limit.
Donating non-cash items to charity has increased in recent years. Donating these items can clear out the clutter in your home without diminishing your cash on hand. In fact, it would increase your cash as your tax bill will decrease from the additional tax deduction. Donor Advised funds have also gained popularity, with the donor getting an immediate tax deduction for the donation while retaining the authority to determine how the money is donated from the fund over time.
For tax purposes, gifts to charity for over $250 have to be documented individually and the copy of the check needs to be included with the timely filed tax return. Non-cash gifts over $5,000 generally need to be independently appraised and appraisers often get booked up as year-end approaches so please be aware of this time restriction when donating. Non-cash gifts greater than $5,000 must be carefully detailed on IRS form 8283. Be careful as this form has a higher potential of being audited. IRS data shows that 60% of taxpayers do not comply properly with this part of the charitable law.
I have a client who recently hired a third party to help them analyze and appraise their artwork. They will have to be careful when applying the deduction to their 2013 tax return. If they donate the artwork and it is used by the donor organization, they get the fair market value of the donated item. If they make the donation and the artwork is not used and is subsequently sold by the donee organization, the original owner of the artwork would get the lesser of the sales price or the fair market value of the art.
Donating appreciated investments to charity is a valuable money savings tool as well. Many have portfolios or assets that have increased dramatically in value over the years. Donors of these items or accounts get the full value of the deduction AND avoid paying taxes on the investment gain. With the IRS, this is one of the best deals going! Be careful with losing investments. It is best to sell these first, thus harvesting the tax loss individually before donating to charity.
There are other complex trusts and investment vehicles that can be set up to donate to a charitable organization, so please explore these options with your advisor before making a hasty decision!
About Stu: With more than 25 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.