Gary J Wood, P C, CPA-Article for Best Times newsletter, December, 1996
"Success in life should be determined by contributions, not accumulations." Unknown.
Near the end of the year is the time when people tend to get more generous, which I think is great. But no one gets a donation for being generous; tax deductions are available for donations to charities that are recognized by the IRS. Also, in order to be deductible, donations cannot be for the benefit of an individual (you or anyone else). That means that if you give money to the needy, it is a gift; but not a deductible one.
If you donate stock that has increased in value, it may be better than selling it and donating the proceeds. The rules allow you to deduct the full fair market value without having to claim and pay taxes on the gain. There are limits on the deduction that may apply and the unrecognized gain has to be claimed for alternative minimum tax (AMT) purposes, so you should check with your tax advisor before making such a gift.
Donating personal services to a charity is not deductible. Neither is letting the charity use your property, such as a vacation home or timeshare. If we were taxed on time, we would be allowed to deduct time we donated. Since we are taxed on income (measured by money and/or property), we can only deduct money and/or property given to a (qualified) charity.
Finally, the kind of story that makes reading tax newsletters bearable. Restaurant's "charity" doesn't fly. Three restaurant owners were plagued by complaints from customers regarding street people who were harassing them. The business owners decided to form a non-profit organization to provide grants to indigent and antisocial persons to leave town. The grants consisted of one-way tickets out of town. The IRS rejected their application for a tax exemption, saying it was run for the benefit of the restaurant owners and not for charitable purposes. The courts upheld the IRS position.
Gary J Wood, P C, CPA has been solving tax and accounting problems for individuals and owners of closely-held businesses in the Valley area for more than a decade. Information contained in this article is general by its nature and should not be construed to be tax or legal advice.
If you would like specific advice for your situation,
please call (602) 956-1774 and arrange an appointment.
A copy of his newsletter, Schedule FYI, is available on the Internet at or by sending a SASE to
P O Box 32815, Phoenix, AZ 85064.
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