Whether you are looking to help out your favorite charity during the holiday season or just interested in obtaining more deductions against your adjusted gross income (AGI) on your 2006 tax return, the holiday season is a great time to make charitable contributions.
Some things to keep in mind when considering your year-end contribution include:
» If you are planning to contribute long-term publicly traded securities, consider their respective capital gain and loss positions before you act. If your securities have appreciated, consider contributing them instead of selling. Donating appreciated stocks will not subject you to capital gain taxation and the greater exposure to alternative minimum tax that you could have otherwise if you had sold the securities. If you have depreciated securities in your hands, consider selling them and then make a donation of the sale proceeds. This would entitle you to both a capital loss and a charitable contribution deduction.
» If you take advantage of the charitable contribution deduction by making gifts of used clothing and household goods, beware! The government now allows a deduction only if the donated clothing or household goods are “in good used condition or better.” It is not clear what Congress meant by “good used condition or better” and it is expected that the IRS will be issuing guidance in this area.
» If you are at least age 70½ and an IRA owner, you are allowed an exclusion from gross income up to $100,000 with an IRA charity contribution. Just authorize your IRA trustee to directly contribute the otherwise taxable IRA distribution to a qualified charity before the end of the year. You may receive additional tax breaks in which limitations are tied to your level of adjusted gross income.
» For contributions of $250 or less, it is recommended that you make the contributions by check or credit card, instead of cash. For contributions of $250 or more, you must obtain written acknowledgement from the charities before the end of the year.
» Finally, since you will be entitled to a deduction as long as the contributions are made by Dec. 31, make your contributions as close to year’s end as possible to maximize the earning potential of your money throughout the year.
Elizabeth Sevilla is a senior tax director in the San Francisco office of accounting firm BDO Seidman LLP.