How Much Charitable Giving is Tax Deductible?

The amount of charitable giving you can deduct each year varies based on the type of gift you make, to what type of charitable organization and your annual adjusted gross income.  Income tax deductions made to a public charity, or donor advised fund like with Crewe Foundation, are 60% of adjusted gross income (AGI)if you are making a gift of cash.  If you are donating an appreciated asset the IRS limits the gift to 30% of AGI.If you are considering making a substantial gift that will exceed either the 60% of AGI in cash or the 30% of AGI in appreciated assets, the IRS will allow you to carry forward any unused deductions for the next subsequent 5 years.  This comes in handy, especially when you are donating an appreciated asset that could end up exceeding the 30% of AGI limitation.  

An Example of Carry Forward

Here’s a quick example of how that carry forward might be used.  Let’s say you have an AGI of $500,000.  You also have an appreciated stock that you would like to donate to your donor advised fund (DAF) worth $300,000.  Selling it, paying the capital gains taxes and then donating the balance in cash would be much less effective.  Instead, consider transferring it in-kind to your DAF and receive a fair-market value deduction and bypass the capital gains tax.Making a donation of $300,000 in-kind exceeds the 30% of AGI deduction limitation on appreciated assets, here’s how the carry-over works.  You can however make the donation by transferring the stock to your donor advised fund and take a deduction of  $150,000 (30% of $500,000 AGI) and then in the following year you still have another $150,000 deduction to take to use the balance of the $300,000 fair-market value donation.On the other hand, if you were considering a $300,000 donation of cash you could take a full deduction for the gift because the IRS allows up to 60% of your adjusted gross income as a deduction for cash donations and in this example 60% of $500,000 is $300,000, so you wouldn’t have any remaining deductions to carry forward.  However, you would still owe the capital gains tax on the transaction.

Every Situation is Unique

Keep in mind this is just a simple example to illustrate how this might work.  Every situation is different as there are many factors involved in determining your AGI as well as what will work best for your DAF.At Crewe Foundation we will work with you and your professional advisors to create a gifting plan that will best meet your needs, maximize your tax benefits and help you create a legacy of giving for you and your family.  Click here to get started and we’ll contact you with more information.