2016 charitable donations offer both estate planning and income tax benefits


During the holiday season your thoughts likely turn to helping those in need by making charitable donations. Doing so will benefit your favorite organizations and help you achieve your estate planning goal of reducing the size of your taxable estate. In addition, by donating during your lifetime, rather than at death, you’ll receive an income tax deduction. But to take a 2016 deduction, you must make the gift by December 31, 2016.

Cash donations

Making an outright gift of cash is the most common and simple option. These gifts can include donations made via check, credit card and payroll deduction. The key is to substantiate them. To be deductible, cash donations must be:

• Supported by a canceled check, credit card receipt or written communication from the charity if they’re under $250, or

• Substantiated by the charity if they’re $250 or more.

Deductions for cash gifts to public charities can’t exceed 50% of your adjusted gross income (AGI). The AGI limit is 30% for cash donations to nonoperating private foundations. Contributions in excess of the applicable AGI limit can be carried forward for up to five years.

Stock donations

Another option is to donate appreciated publicly traded stock you’ve held more than one year. Because this is considered long-term capital gains property, it can make one of the best charitable gifts. Why? Because you can deduct the current fair market value and avoid the capital gains tax you’d pay if you sold the property.

Donations of long-term capital gains property are subject to tighter deduction limits — 30% of AGI for gifts to public charities, 20% for gifts to nonoperating private foundations. In certain, although limited, circumstances it may be better to deduct your tax basis (generally the amount paid for the stock) rather than the fair market value, because it allows you to take advantage of the higher AGI limits that apply to donations of cash and ordinary-income property (such as stock held one year or less).

If you’re planning on making charitable donations this year, please get in touch with us to learn about additional rules that may apply.

© 2016