CASH & CASH EQUIVALENTS
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.
Back to top
PUBLICLY TRADED SECURITIES
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.
Back to top
CLOSELY HELD
SECURITIES
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.
Back to top
LIFE INSURANCE
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.
Back to top
REAL ESTATE
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.
Back to top
PERSONAL PROPERTY
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.
Back to top
RETIREMENT ASSETS
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).
Back to top
IN-KIND GIFTS & PRO BONO SERVICES
In addition to cash contributions, some companies 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.
Back to top
VOLUNTEER TIME
In addition to giving dollars to charity, another important way to help your
community is to give of your time. Nonprofit organizations are in great need of capable,
committed volunteers, and your volunteer contributions can leverage the financial
contributions you make to an organization. Here are some resources that can help you find
the right volunteer opportunity for you:
Hands On Twin Cities
Hands On Twin Cities (formerly the Volunteer Resource Center) works to
strengthen the Twin Cities community through volunteerism and helps
match volunteers with appropriate opportunities. Search a database of
more than 8,000 volunteer opportunities with more than 1,000 nonprofits.
Idealist.org
This site offers a national/international volunteer database operated
by Action Without Borders, whose mission is to "build a world where
all people can live free and dignified lives in a healthy
environment." In addition to volunteer listings, you can search the
site for nonprofit organizations, jobs, services, resources and more.
VolunteerMatch
You can search VolunteerMatch's online database of one-time and ongoing volunteer
opportunities by zip code, category and date, then sign up automatically by e-mail for
those that fit your interest and schedule. VolunteerMatch is operated by ImpactOnline, a
nonprofit dedicated to investing in the development of public interest
Internet applications. You'll find the same volunteer database at
Network for Good,
a comprehensive nonprofit site operated by the AOL Foundation with the Benton
Foundation.
For an in-depth look at finding volunteer opportunities online, read
the following article from the summer 2001 issue of the Minnesota
Council on Foundations' "Giving Forum"
newspaper:
Companies may also want to check out the the Toolkit's corporate
volunteering page for information and resources on running employee
volunteerism programs.
