By John Marold, J.D., CTFA

In the midst of the Great Recession, charitable organizations suffered as giving slowed. Now, we are happy to see giving levels normalize. Charitable giving reached $373.3 billion in 2015, up 4 percent from the previous year, according to estimates from “Giving USA,” an annual report on American philanthropy.

While many of you likely donate to charities, it is always important to keep in mind these key considerations of charitable giving. This review of philanthropic planning basics is intended to help as you make your financial plans.

Consider Taxes

Computer on a deskA tax-deductible charitable gift is one made to or for the use of a charitable organization. To qualify for a charitable income tax deduction, a taxpayer must itemize deductions on his or her income tax return, meet substantiation requirements and make the gift to a qualified organization. Only contributions to qualified organizations are potentially tax deductible. These include, but are not limited to, religious organizations, nonprofit schools, hospitals and medical research-related organizations, such as the American Red Cross. To ensure that the organization is qualified, a donor should ask for the organization’s tax exemption certificate.

Advantages of Appreciated Property

It is particularly beneficial to make a charitable gift of appreciated property held for more than one year that, if sold, would qualify for long-term capital gains tax treatment (e.g., stock). If such property is contributed to charity in kind, the appreciation is not subject to capital gains taxes, assuming that the contribution complies with all of the applicable rules.

Example: Jamie purchased stock for $10,000 more than a year ago, and the stock is now worth $40,000. If she sold the stock today and gave the charity the $40,000 sale proceeds, she would have to report the $30,000 capital gain and pay tax thereon. Alternatively, if Jamie gifted the $40,000 of stock directly to a public charity, she would qualify for a charitable tax deduction (subject to annual deduction limits) equal to the fair market value (FMV) of the stock ($40,000), and avoid paying capital gains taxes on the appreciation ($30,000).

Substantiating Your Gift

To take an income tax deduction, all charitable gifts must be substantiated. No deduction can be taken for a monetary gift unless the taxpayer has a bank record or acknowledgement from the charity showing its name, date and the amount of the contribution. This means that charitable gifts made with cash without a corresponding acknowledgement from the charity are not deductible. For contributions of non-cash property, the taxpayer must have a receipt from the charity and a record showing his or her name and describing the gift. There are also additional substantiation requirements applicable for contributions of $250 or more, non-cash contributions exceeding $500, and contributions of cars, boats and planes.

Donation Options and Structures

There are several options that a taxpayer can utilize to benefit from a charitable transfer. These include, but are not limited to, the following:

  • Bargain Sales
  • Charitable Gift Annuities
  • Charitable Remainder Trusts
  • Charitable Lead Trusts
  • Donor Advised Funds
  • Gifts of Life Insurance
  • Pooled Income Funds
  • Private and Community Foundations

Many clients who have built a sizeable collection of art and collectibles may wish to donate some or all of it to a local museum or other charitable organization. Charitable contributions of art and collectibles can present special issues for the donor. Much like gifts of appreciated property, which have been held for over a year, the charitable income tax deduction would be equal to fair market value (FMV).

Today, the IRS is reviewing such gifts with increased scrutiny, requiring a complete description of the object and – in the case of an audit – the IRS has an Art Advisory Panel that will review and evaluate appraisals submitted by taxpayers in support of the FMV claimed on the income tax return. Having proper FMV documentation (prepared by an expert appraiser specializing within the specific collectibles market) attached to a federal or state tax return best mitigates potential IRS challenges and associated legal costs. Another issue in donating art and collectibles to a museum is whether the organization is willing to accept the piece. For instance, a museum could turn down the donation if it doesn’t fit their collection and/ or if insurance and associated carrying costs make it prohibitive to retain.

Taking time to review these key points will help you optimize your charitable giving and integrate your philanthropy with your financial plan. Your tax advisor can help address the tax consequences of your plan. Contact your Wealth advisor to learn more about BB&T resources that can help you put your plan into action.

By John Marold, J.D., CTFA

In the midst of the Great Recession, charitable organizations suffered as giving slowed. Now, we are happy to see giving levels normalize. Charitable giving reached $373.3 billion in 2015, up 4 percent from the previous year, according to estimates from “Giving USA,” an annual report on American philanthropy.

While many of you likely donate to charities, it is always important to keep in mind these key considerations of charitable giving. This review of philanthropic planning basics is intended to help as you make your financial plans

Consider Taxes
A tax-deductible charitable gift is one made to or for the use of a charitable organization. To qualify for a charitable income tax deduction, a taxpayer must itemize deductions on his or her income tax return, meet substantiation requirements and make the gift to a qualified organization. Only contributions to qualified organizations are potentially tax deductible. These include, but are not limited to, religious organizations, nonprofit schools, hospitals and medical research-related organizations, such as the American Red Cross. To ensure that the organization is qualified, a donor should ask for the organization’s tax exemption certificate.

Philanthropic Planning Basics BB&T Perspectives

Advantages of Appreciated Property
It is particularly beneficial to make a charitable gift of appreciated property held for more than one year that, if sold, would qualify for long-term capital gains tax treatment (e.g., stock). If such property is contributed to charity in kind, the appreciation is not subject to capital gains taxes, assuming that the contribution complies with all of the applicable rules.

Example: Jamie purchased stock for $10,000 more than a year ago, and the stock is now worth $40,000. If she sold the stock today and gave the charity the $40,000 sale proceeds, she would have to report the $30,000 capital gain and pay tax thereon. Alternatively, if Jamie gifted the $40,000 of stock directly to a public charity, she would qualify for a charitable tax deduction (subject to annual deduction limits) equal to the fair market value (FMV) of the stock ($40,000), and avoid paying capital gains taxes on the appreciation ($30,000).

Substantiating Your Gift
To take an income tax deduction, all charitable gifts must be substantiated. No deduction can be taken for a monetary gift unless the taxpayer has a bank record or acknowledgement from the charity showing its name, date and the amount of the contribution. This means that charitable gifts made with cash without a corresponding acknowledgement from the charity are not deductible. For contributions of non-cash property, the taxpayer must have a receipt from the charity and a record showing his or her name and describing the gift. There are also additional substantiation requirements applicable for contributions of $250 or more, non-cash contributions exceeding $500, and contributions of cars, boats and planes.
Donation Options and Structures
There are several options that a taxpayer can utilize to benefit from a charitable transfer. These include, but are not limited to, the following:
  • Bargain Sales
  • Charitable Gift Annuities
  • Charitable Remainder Trusts
  • Charitable Lead Trusts
  • Donor Advised Funds
  • Gifts of Life Insurance
  • Pooled Income Funds
  • Private and Community Foundations

Many clients who have built a sizeable collection of art and collectibles may wish to donate some or all of it to a local museum or other charitable organization. Charitable contributions of art and collectibles can present special issues for the donor. Much like gifts of appreciated property, which have been held for over a year, the charitable income tax deduction would be equal to fair market value (FMV).

Today, the IRS is reviewing such gifts with increased scrutiny, requiring a complete description of the object and – in the case of an audit – the IRS has an Art Advisory Panel that will review and evaluate appraisals submitted by taxpayers in support of the FMV claimed on the income tax return. Having proper FMV documentation (prepared by an expert appraiser specializing within the specific collectibles market) attached to a federal or state tax return best mitigates potential IRS challenges and associated legal costs. Another issue in donating art and collectibles to a museum is whether the organization is willing to accept the piece. For instance, a museum could turn down the donation if it doesn’t fit their collection and/ or if insurance and associated carrying costs make it prohibitive to retain.

Taking time to review these key points will help you optimize your charitable giving and integrate your philanthropy with your financial plan. Your tax advisor can help address the tax consequences of your plan. Contact your Wealth advisor to learn more about BB&T resources that can help you put your plan into action.

About the Author

John Marold

John Marold

Senior Vice President, Wealth Management Financial Planning Strategist

John is responsible for the overall management, technical guidance, and compliance oversight for Wealth Division’s IRA. He graduated from the University of Wisconsin, Madison and earned his J.D. degree from the University of North Carolina School of Law at Chapel Hill. John is a regular speaker for continuing education programs for Duke University and Wake Forest Medical Schools, CPAs, Certified Financial Planners, Certified Trust and Fiduciary Specialists, and insurance advisors.