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The end of the year is approaching, and this is an optimal time to consider tax planning strategies that can minimize your tax liability. Charitable giving is one of the strategies that can reduce your tax obligations while supporting the philanthropies most important to you. The following are a few things to keep in mind before making your year-end contributions.
Beware of Qualifications and Limits
In order for your charitable contributions to be deductible, they must be made to a qualified organization. Any organization can tell you whether or not they are qualified. You can also check the IRS published list of organizations which can be accessed at the following link: https://apps.irs.gov/app/eos/
The amount of your deduction for charitable contributions depends on the type of property you donate and the type of qualified organization the property is given to. Cash contributions to qualified organizations, such as public charities or Donor Advised Funds, (“50% limit organizations”) are limited to 60% of your adjusted gross income. However, contributions to charities of property that would otherwise be subject to capital gains taxes, such as appreciated stock, are limited to 30% of your adjusted gross income.
The lower limit of 30% of your adjusted gross income also applies to charitable contributions of cash that are made to qualified organizations which are not considered “50% limit organizations”, such as private foundations. Similar to the above, if these charitable gifts are of capital gain property to these “30% limit organizations”, they are subject to an even lower limit of 20% of adjusted gross income.
Contributions exceeding the adjusted gross income limit for the year can be carried forward for 5 years, with a 15-year carryforward allowed for a qualified conservation contribution.
Consider Marketable Securities in Lieu of Cash
While most donations are made in cash, you may want to consider donating long-term appreciated, unrestricted marketable securities that you have held for more than one year. When you donate long-term appreciated, unrestricted marketable securities to a charitable organization, you will receive a deduction for the full fair market value of the security, and will not have to recognize any of the unrealized gain.
Another factor to consider is the tax rate of benefit for your charitable donations. You may want to consider donating more in a year when you are receiving a higher tax benefit for your donation.
Take Advantage of the MA Community Investment Tax Credit
There is a Massachusetts tax credit which took effect in 2014 and will expire in 2019. This provides individuals with an unprecedented opportunity to deepen the impact of their philanthropy while gaining significant tax benefits. The Community Investment Tax Credit (CITC) is designed to encourage individuals (and companies) to donate to highly effective organizations that are helping to expand economic opportunities for families and communities across the state.
To learn more about this credit, please contact a DGC advisor. For more information visit: www.macdc.org or http://www.mass.gov/hed/community/funding/community-investment-tax-credit-program.html. To ensure that your charitable contributions are tax-deductible, remember the IRS requires that contributions of $250 or more must be substantiated in order to be deductible. You must get a written acknowledgment from the charity that includes a description of what was donated, the date donated, and a statement that no goods or services were rendered in return for the donation. The acknowledgment must be obtained by the time the tax return for the year of the donation is filed or due, whichever comes first.
Consult with Your DGC Advisor
Planning for charitable deductions is just one of the ways our experienced team at DGC can help you to reduce your tax liability. If you would like to receive additional information about year-end charitable planning or discuss whether there are other tax planning opportunities that may be available to you, please contact a member of your DGC client service team or Leanne Stafford, CPA, MST at 781-937-5340 / firstname.lastname@example.org or Scott Treacy, CPA at 781-937-5393 / email@example.com.