Giving on Purpose

Giving to our family, friends, church, and other charities is an important part of life. The gifts we give strongly reflect our values and what we deem to be important. Whom we give to is important to be sure, but how we go about giving may be just as important from a tax standpoint. Charity Donations

The first priority with your giving of course is to make sure your gifts are going to the correct recipients and hopefully being used for purposes you support. Along with that, you want to give in a way that puts you in the best tax position possible.

Charitable Giving: Most people are aware that gifts to qualified churches and charities are deductible on your 1040 if you choose to itemize. The IRS has very generous limits on charitable giving; you are allowed to deduct up to 50% of your adjusted gross income (AGI) for donations to charity during the tax year. In addition, if you go over these limits, you are allowed to carry over the excess donations for up to five years. Don’t forget that money is just one way you can receive a charity deduction. You may also write off gifts of property; such as old clothing, shoes, other personal items, and even your old car. However, make sure to get a dated receipt from the organization you donated to.

Gifts to Family and Friends: Unfortunately, birthday gifts and other gifts to family members and friends are not tax deductible. But that’s not really the point of these types of gifts anyway. Most people will give birthday, holiday, wedding, and other such gifts regardless of whether or not they can take a deduction for it. Taxes come into play when families give larger amounts of cash or property to their heirs; usually for estate planning purposes.

Here is how it works; gifts over a certain amount are subject to the gift tax. If you do not exceed the amount allowed by the IRS, you can gradually give your wealth away to your family tax free. For 2015, the exclusions are as follows:

• For solely owned property, $14,000 to each recipient.

• For property jointly owned with your spouse, $28,000 to each recipient.

If you are giving away cash, it is pretty straightforward; just write a check for up to $14,000 (or $28,000 from a joint bank account) to each family member you want to give to and you are exempted from the gift tax while simultaneously lowering your estate value.

If you are giving away property such as residences, expensive cars, closely held businesses, and other assets that are difficult to properly value, you will likely need the assistance of a local accounting firm to help you successfully navigate through these complex transactions.

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