One of the easiest, and most rewarding ways to reduce one’s income tax and estate tax is with charitable gifts. Around 89% of American households make annual gifts to charities which accounts for 2.2% of the annual gross domestic product. A person may make an unlimited amount of gifts during their lifetime and receive favorable tax treatment for their good deed. Gifts of cash, property, and services all qualify for the charitable tax deduction but there are several issues to consider when valuing the deduction. First thing to consider when valuing the gift, is ensuring the organization is a qualified charity. This includes churches and temples, public parks, colleges, and non-profit charities. Political groups, social clubs, individuals, and for-profit groups do not qualify. The website Guidestar, www.guidestar.com, will verify the organization’s status.

If a gift is made in cash, and any benefit is received on account of the donation, the deduction must be reduced. A perfect example is donating money to a college in order to receive athletic tickets. Only 80% of the donation will be allowed for the deduction. Another example is purchasing a ticket to a charitable event and receiving a tangible benefit; the deduction must be reduced by the fair market value. However, this does not apply to low value items with the organization’s logo on it, such as a tee-shirt.

A common, overlooked charitable deduction is gift of services. Any unreimbursed out-of-pocket expenses relating to the service are deductible, but not the value of the service itself. If any driving expenses are incurred, oil and gas are deductible or 14 cents for every mile driven. Foster parents are able to deduct expenses in excess of payments received, if there is no profit motive. If an accountant offered free tax planning advice, he would not be able to deduct their typical fee for this service. There are many other issues that need to be considered when planning charitable gifts; I will continue to provide information regarding the specific issues throughout the month.