The tax deduction is, of course, the selfish side of a donation to charity: to a church, hospital, school, school, home for the aged or the like. When you give a pound to charity, the after-tax cost reduces the nobility of the gesture - but it's there, so why ignore it?
For example, if you give £100, and have a taxable income of, say, £28,000, and file a joint return with your wife - your net cost comes to just £64. With £32,000, it's £61 - and it works down to £50 for a man who has a taxable income of £50,000. And it is cash on the barrelhead that gets most favoured treatment, by and large, from Internal Revenue. What's more, the 2009 tax reform law still the last word on the subject - puts some gaping holes into some of the fancier "planned" donation ideas.
To show how cash donations get the better break: In a recent case, a taxpayer claimed a sizable church deduction for the year - but he had no records whatsoever to prove his case. He was able to show, though, that he was a steady churchgoer and had made comparable cash gifts to other charities. Result: The Tax Court allowed the full deduction claimed. The case is on the liberal side (he had no records); but it makes the point - you do, in fact, fare better when you've donated cash.
What of the planned-gift ideas? Despite the 2009 reform law, there are still some limited possibilities - and these are being eyed closer than ever today by schools and other non-profit institutions. Say that you own a block of stock and are willing to part with a slice of it. You show a paper profit on the stock. You decide to donate to your alma mater, say £10,000 worth - shares that cost you only £5,000. The result is that you get a charitable deduction of £10,000; and you pay no tax on the £5,000 appreciation. One caution: Under the revised law, for this to work, you must have held the shares for at least six months (so that they come under the long-term gain rules). Note: If you own shares that have declined in value you would sell them first, then make your donation; this way you could use your tax loss on the sale to your advantage.
Past this point, you're on a shaky step. The next rung up the ladder is "giving capital gains." Here you sell the shares to the school (again long-term) at your original cost. Say you own shares that cost £30 and today list at £60. The idea is to sell them to the charity for £30, getting back your cost - then deduct £30 on your tax return. Here, though, the revised law imposes an extra tax on you, the donor, and involves complex paperwork. Review this one with an adviser; you may find that such a plan is impractical in terms of net cost.
More complex are so-called "lifetime income plans." You donate a block of securities, but reserve the income from them for as long as you live. Again, the revised law hems you in - this time with some strict technical requirements. It takes detailed, expert advice. At this writing, even the specialists aren't sure of the precise results.
Another type of donation that has raised much dust is the gift of an art object to charity. Here you run in to more new-law restrictions - for instance, the appreciation in value of the donated art work will be cut by 50% for deduction purposes when the donation is made to certain types of non-profit organizations. You can, though, still make the art donation to a museum and take the full tax deduction.
The Tax Court has also been hitting art donations hard. In a recent case, the taxpayer claimed that some donated paintings were worth - for deduction purposes - about £100,000. The court promptly cut this down to £30,000 even though the donor had employed a well-known, experienced art appraiser. In effect, the court decided that the appraiser wasn't reliable. Moral, say the specialists: Hire two appraisers if a sizable sum of money is involved - and muster all other possible evidence of value.
Frankly, the whole area of donating personal property to charity instead of money - has been confused by much controversy over former President Nixon's donation of his Directorial papers. The moral: get solid advice on the details.
How do you deduct a charitable contribution made by buying tickets to a benefit - a theatre party, dance, sports events, or such? There's a lot of confusion on this score, according to Internal Revenue. IRS points out that often a taxpayer will be misled by the charity's simple claim that the cost is deductible.
Generally, you may deduct the difference between any regular price (standard box office) and the higher amount you pay the charity. If you tear up the tickets without using them, the deduction is the same. However, there's a way to deduct both the standard ticket price and added contribution: If you aren't interested in attending, simply return the unused tickets to the charity along with your check for the full amount!
When it comes to doctor and hospital bills, even the government's tax collector appears to realize that a family's cost can go sky-high these days. So the IRS position is somewhat easier than in the past. Note two points:
You have more items to deduct now, including even such things as clarinet lessons to help cure a child's dental ills. It may pay you to go over the list, which has all sorts of entries that many people miss.
You're on firmer ground when talking medical deductions to a tax agent than when trying to sell him on, say, the merits of travel-and-entertainment expenses or large office-at-home outlays.
In other words, the law is a bit more on... see: Medical Bills Get Sympathy From The Irs