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Volume 17, Issue 5

From: Keating Law, PLC

Help Clients Avoid Costly Tax Traps When They Give to Charity

When giving to a charity for tax purposes, your clients are not being Scrooges if they make sure they're following the letter of the law. They want a donation to do good for the charity - and for themselves - by avoiding mistakes.

The error of our ways

There are, The Wall Street Journal reports, many ways to make mistakes.

• One problem is uncertainty about how to value gifts. Works of art, automobiles and real estate all should be given a correct valuation by an experienced appraiser before the item is donated.
• If a client gets something in return for his gift, he can only deduct the amount of the gift that exceeds the value you get in return. In other words, your client can't double dip.
• In the case of a client using her own auto to help the charity, she can deduct real expenses - oil and gas used getting to and from the place where you volunteer - or she can use the standard rate of 14 cents per mile. But she cannot deduct for your time or services.
• Other donors, InvestmentNews says, don't get the proper paperwork from the charity, which your client needs for anything valued at more than $250. The IRS requires written acknowledgement - a receipt or thank-you letter generally will suffice - from the charity for the gift, but make sure your client gets it in a timely fashion.
• Even if your client gives to his own tax-exempt foundation, he still needs the documentation. The letter or receipt needs to contain the charity's name, its tax ID number, and the amount of cash given or a description of the item if it's a non-cash donation.

Give till it heals

Another way to donate, if your client is 70½ or older, is to transfer as much as $100,000 from an IRA directly to her charity of choice. The best part is, she doesn't have to include that as part of her income because it counts toward her required minimum distribution.

It is not allowed to use direct these transfers as charitable gifts, The WSJ warns, but it's still a good strategy for higher-income taxpayers. That's because these transfers aren't counted as income that would increase your client's adjusted gross income and lead to the loss of other key deductions and exemption amounts.
Be aware, however, that this strategy only applies to IRAs, not 401k accounts; it doesn't apply for those younger than 70½ and the transfer have to go directly to the charity.

The gift that keeps on giving

Donor-advised gifts are another easy, tax-efficient way to give. Make the gift to the fund, The WSJ advises, and then suggest how the money is distributed to your favorite causes now or in later years.

In this scenario, your client claims the deduction for the year in which he funds the account. Even if the fund distributes the money years later by making grants to charitable organizations, he only get the deduction at the time he gives the money away.

We hope this information was useful to you and helps your clients and their families. If you have a specific case or a question, don't hesitate to call our office.

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