We’re all familiar with donating cash to charities. If you itemize your deductions on your personal federal income tax return, you may take a charitable gift deduction for the amount of your charitable gift of cash and cash equivalents (certificates of deposit, savings bonds, money market fund, etc.; for details, see the Giving Options Summary Chart). If you can’t take the entire deduction in the first year because of this limitation, you may carry the balance forward into the next five years.
Even if you don’t itemize deductions on your federal tax return, Minnesota allows non-itemizers to claim a 50 percent tax deduction for the amount of your charitable contributions over $500 on your Minnesota tax returns, thanks to a law passed by the Minnesota Legislature in 1999. <
When savings bonds, certificates of deposit and other ordinary income assets are given to charity, the recipient charity, unlike the family, will not have to pay tax on the gain in those assets. You can name the charity as the primary or contingent beneficiary, or as a partial beneficiary.
You can transfer ownership of appreciated securities owned for at least one year to a charity and receive a deduction for the average value of the security on the day of the transfer. When the security is sold by the charity, neither you nor the charity will have to pay capital gains tax. You receive the benefit of having your gift valued at fair market value, including the appreciation, for the purpose of determining your charitable deduction. For these long-term capital assets, you may claim an income tax charitable gift deduction for the year in which the gift is made (for details, see the Giving Options Summary Chart). If you can’t deduct the full fair market value of the gift in the first year, you may carry the balance forward for the next five years. If the securities have been owned less than one year, the charitable deduction is based on your cost basis in the security.
For owners of closely held securities, such as Sub-Chapter S Corporations (S Corps) stock, it is possible for companies to give S Corps stock, and for private and community foundations to own S Corps stock. There are limitations that accompany ownership of such stock, and the recipient organization(s) should be encouraged to consult their professional advisors prior to accepting such a gift.
By designating a charity as the beneficiary of a new or existing life insurance contract, you can make a significantly larger charitable gift than may be possible out of your current assets. And, if you make a charity the owner of the contract, you can deduct the premiums as you pay them. Or, if you would rather retain the right to change beneficiaries on the contract and don’t care if you can’t deduct the premium, you can remain owner of the contract and simply name the charity as partial, sole or contingent beneficiary.
You can make outright gifts of real estate to a charity. If you have owned the donated property for at least one year, both you and the charity can avoid paying capital gains taxes on the appreciation in the value of the property. Outright gifts of real estate will often result in an income tax deduction equal to the fair market value of the property, as determined by appraisal, but there are some situations where this may be reduced.
It’s possible to make a gift of your personal residence, vacation home, or farm to a charity and retain a "life estate" in the property, allowing you to retain rights to use or rent out the property until your death. You deed the property directly to the charity subject to your retained life estate, receive an immediate income tax deduction for a portion of the appraised fair market value, and have the comfort of knowing that the property will be excluded from probate.
If the donated real estate is a long-term capital asset, you may claim an income tax charitable gift deduction for the donation (for details, see the Giving Options Summary Chart). If you can’t deduct the full fair market value of the gift in the first year, you may carry the balance forward for the next five years.
Personal property, such as artwork, cars, clothing and jewelry, can be given to charity. But unless the charity will actually use the property in connection with its stated mission, you can deduct only your cost basis, not the fair market value, of the property. (Note: It is important to ask the recipient of your gift whether or not your gift is being used in connection with its stated mission.) If the property has depreciated in value from the original cost, which is typically the case with cars and clothing, then the deduction will be its current value.
Distributions from certain kinds of retirement assets — such as individual retirement accounts (IRAs), tax-sheltered annuities, and 401(k) and 403(b) plans — are subject to income tax and may be subject to generation-skipping taxes and estate taxes. However, gifts of these assets will not be taxed if they are paid directly to a charity as beneficiary. You can designate all or a certain percentage of your retirement assets to go to charity. It is important that you seek professional advice to determine how your retirement asset distributions will be affected by naming a charity as a beneficiary.
Under current law, if you wish to make a gift of IRA assets to charity, you must first withdraw the assets, recognize the distribution for income tax purposes, contribute the funds to charity, and then claim an income tax charitable deduction to mitigate the income tax liability (Note: there may be penalties for early withdrawal of your IRA assets).
In addition to cash contributions, many businesses donate their products to charity — often referred to as "in-kind" gifts — or offer their services on a free "pro bono" basis. Many companies have products that can be used by nonprofits, including products from current inventory, obsolete merchandise, returned or slightly damaged goods, computers, or office furniture and equipment. Nonprofits can also benefit from services provided by a company or its employees, such as printing, legal representation or publication design.
A company’s charitable donation of its products can qualify for a charitable deduction. However, limitations exist on what and how much can be deducted. The rules are complicated and require careful prior analysis by corporate or outside counsel. The value of staff time donated to a nonprofit organization is not deductible, although out-of-pocket expenses (gas, mileage, meals, etc.) for such volunteer work can be deducted within certain limits.
In addition to giving dollars to charity, another important way to help your community is to give of your time. Nonprofit and community groups and organizations are in great need of capable, committed volunteers, and your volunteer contributions can leverage the financial contributions you make to an organization. Employee volunteerism can be a triple win: helping people in the community while giving employees a chance to shine and benefiting the company in numerous ways.
Here are some resources that can help you find the right volunteer opportunity for you:
HandsOn Twin Cities: Formerly the Volunteer Resource Center, HandsOn brings people together to strengthen communities through meaningful volunteer action. It works to link volunteers with volunteer opportunities, develop meaningful volunteer projects, and provide training and consulting for volunteer managers and groups, among other activities.
Idealist.org: A project of Action Without Borders, Idealist.org is an interactive site where people and organizations can exchange resources and ideas, locate opportunities and supporters, and take steps toward building a world where all people can lead free and dignified lives.
Volunteer Match: VolunteerMatch strengthens communities by making it easier for good people and good causes to connect. The organization offers a variety of online services to support a community of nonprofit, volunteer and business leaders committed to civic engagement. It serves as an internet recruiting tool for more than 74,000 nonprofit organizations.