The Benefits of Making Charitable Donations

There are many benefits of making charitable donations that include the way people feel about themselves including their religious and spiritual feelings and giving back to the community. I will leave these and other benefits for someone else to address and I will concentrate on the tax and marketing benefits.

I will address the general benefits of making charitable contributions, but before you commit to make any donations you should consult with your tax attorney as there may be exceptions as to you and depending on your individual situation there may be adverse effects to you that are not discussed here, such as an adverse effect of alternative minimum tax [AMT] and or the Pease phase outs. Also there may be other factors in your individual tax situation that may make the factors discussed more or less beneficial in your individual situation.

In addition to making money contributions by check or credit card, please don’t make them in currency as the IRS may have trouble believing you. It may be very beneficial to make property contributions to the charity of your choice. Most people are familiar with giving used clothes and other property to a charity, keeping the required receipts of course. However, a more sophisticated approach is the giving of “appreciated property”. For example, say you bought a stock over a year ago for $10,000 that is now worth a $100,000. If you sell the stock and give the charity the proceeds after you pay capital gains tax, the charity will receive less than a $100,000 and you will have a tax deduction of less than a $100,000. The much better way is to give the stock to the charity where they receive the stock [or other property] worth $100,000 and you receive a tax deduction of $100,000. More for you and the charity, less tax for the IRS!

In addition to giving appreciated property you might want to consider giving money to a charity from your pension plan. For example, when you reach 70 ½ you have to take a “required minimum distribution” [RMD] from your pension account or suffer a 50% excise tax of the amount that you should have taken. That’s right a FIFTY PERCENT PUNISHMENT! If you should have taken $100,000 your punishment is $50,000!!! However, you can donate up to $100,000 a year of your RMD and avoid paying income tax on that. This is called a “qualified charitable distribution” [QCD].

Or suppose you donate an appreciated building to a charity that uses it to house the homeless. You receive a tax deduction in the year that you provide it, and possibly in future years depending on your financial circumstances [if you exceed your charitable maximum contribution for the year you may qualify to carry forward the balance of your contrition for the next five years].

In addition to the good that you do in the year of your contribution the good may continue indefinitely into the future. If the donation carries your name the marketing benefit may also continue indefinitely.

Many people in business value people and organizations that do meaningful charitable work and prefer to do business with them over others that don’t. The business and marketing goodwill that may be generated may be far in excess of the dollars or fair market value of the property given as well as the taxes saved and generate revenue also far in excess of the charitable contribution given that otherwise would have been forgone.