How to Get the Most Tax Breaks Out of Giving

‘Tis better to give than to receive. That’s a good Christmas-spirited rule for most things, but not for year-end charitable contributions.

If your holiday plans include donating to your favorite church, hospital, school or other nonprofit organization, ‘tis better to give and to receive--with the receiving being the maximum tax benefits you’re entitled to.

You may be among those with an extra incentive to give this year. If you’re in the 33% tax bracket, your top tax rate will fall to 31% or lower next year. Thus, consider pushing gifts into this year that you planned for next year because the deduction is worth more this year, suggests Julian Block, a Larchmont, N.Y., tax attorney and author of “Julian Block’s Year-Round Tax Strategies.”

Of course, most people give primarily out of generosity rather than for tax breaks. But if you’re going to give, avoid errors that needlessly boost your tax bill. For example, donate appreciated assets instead of cash, so you can reduce your capital gains tax.

Here are some reminders to help you maximize benefits of charitable contributions:

* Contribute appreciated assets instead of cash.

This way you’ll get a tax writeoff for the current value of the assets, and you happily forgo tax on the capital gains.

Let’s say you own stock you bought for $1,000 that is now worth $2,500. If you donate the stock, you can deduct $2,500 and won’t be liable for tax on the $1,500 profit.(This advantage may be lost if you are one of the few taxpayers subject to the alternative minimum tax). If you donate $2,500 in cash instead, however, you’re still liable for tax on your stock eventually (unless, of course, it declines to less than what you paid for it). Further, you’ll be giving an asset--cash--that has already been taxed.

What if you like the stock and think it will go higher? Give it anyway and simply buy more of the same stock to replace it.

On the other hand, never donate assets that have declined in value. Sell them instead and give the cash proceeds. That way you can claim a capital loss that will reduce your taxable capital gains or ordinary income. If you donate the loser directly, you can’t claim the loss.

* Clear your attics.

Your used furniture, old clothes, art pieces or other “junk” might be worth some nice tax writeoffs. By donating them, you can usually deduct their fair market value. Just be sure to keep a detailed list of what you give (photographs also are a good idea) and get receipts in case the Internal Revenue Service asks questions.

* Get appraisals for bigger donations.

If your annual donations of property--such as collectibles, manufactured goods or real estate--exceed $5,000, the IRS requires that you get written appraisals. For donations of stock that is not publicly traded, you almost always need an appraisal if the total exceeds $10,000.

Also, if the total value of your donations of property exceeds $500, you must complete IRS Form 8283 and include it with your 1040.

* Get the biggest bang for your buck.

Some charities do a great job of using most of your money for their charitable purpose--helping the homeless, fighting drug abuse, finding a cure for AIDS, etc. But others will waste most of it on high administrative expenses, fund-raising costs or other charges.

The December issue of Money magazine contains a ranking of the nation’s largest charities, based on which use donations most efficiently. Ask charities soliciting you for donations to tell you how much of your gift will go toward their charitable purpose.

Also, be sure that the organization you are giving to is “qualified” under IRS rules; if not, you may not be entitled to a deduction.

* Complete your donation before year-end.

If not, your donation will be deductible only toward 1991 taxes. One exception: If you charge your donation on your credit card, you can make the payment next year as long as you incur the charge this year.

* Keep track of expenses.

If you do volunteer work, record your travel and other unreimbursed expenses because they usually are deductible. You can deduct out-of-pocket driving expenses at 12 cents a mile. You also can write off parking fees, highway tolls, telephone calls, stationery, uniforms needed for charitable work (as long as they aren’t adaptable to other work) and costs of cleaning those uniforms.

If you’re an official delegate attending a convention of a qualified charitable organization, you can deduct travel, lodging and meal expenses.

However, the value of your time is not deductible.

* Consider gift annuities, funds and trusts.

Do you want to donate assets, get a deduction, yet still receive income from those assets? Then consider gift annuities, pooled-income funds, charitable trusts or other devices generally available from larger, more sophisticated nonprofits.

For example, under a gift annuity, you can donate at least $1,000 and get a fixed amount of income each year for life, just like insurance company annuities. Your immediate tax deduction depends on the size of your gift and when you start receiving payments.

Under a pooled-income fund, you donate at least $5,000 into a fund administered by a charitable group. You and other beneficiaries can receive income from that fund for life, with the principal ultimately going to the charity upon your death. The size of your immediate writeoff depends in part on your life expectancy--the older you are, the bigger the deduction.

Want more information about donations? Call the IRS at 800-TAX-FORM for a free copy of its Publication 526, “Charitable Contributions.”