Making a gift to a charity helps a worthy cause and also can give you a tax deduction. You can give cash, investments, property or other assets, but you must give them to an organization approved by the Internal Revenue Service as a charity. You also need to get a receipt for your contribution. Gifts to individuals cannot be deducted.
Cash gifts are among the most straightforward. You simply write a check or make a donation to a specific tax-exempt charitable organization and keep a receipt. There's no limit on how much you can give or how many charities you can give to. The only major requirement is that you cannot receive any goods or services in exchange, which might constitute a purchase.
You can donate property to a charity for its use, to keep and manage or to sell. You must establish a fair-market value of the property and have a receipt from the charity. A property donation can be a car, real estate or some personal item like a television set or kitchen appliance. It can even be surplus food or household products.
A pooled trust is another deductible alternative. A charity sets up a trust that you and other individuals donate to, creating a larger pool of money to invest. The pooled money earns income, which is paid to you or a beneficiary you designate and to others in the trust. This gives you a return on your donation, as opposed to cash contribution. You can deduct your entire initial contribution when you make it. Income you receive is taxable as personal income, but you can designate it to be retained in the charity pool and claim that as a deduction.
An annuity trust is a good charitable deduction for older donors who can use income as well as a tax deduction. You make a donation to an institution, which sets up an annuity to pay you a regular amount for your lifetime. You can immediately deduct the estimated value of the gift after all annuity payments have been made.
A charitable remainder trust is used to donate major assets and still receive some benefit from them. You create an irrevocable trust and put securities, real estate or other assets into the trust with the charity as the trustee. That can give you a deduction and remove the assets from any other taxes. The charity invests or manages the assets and gives the income to you or to a designated beneficiary. You continue to get income from the assets during your lifetime, and at your death, the remainder of the trust goes to the charity.
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