In the aftermath of the horrific damage in Florida, Texas and the Caribbean caused by the recent hurricanes, there are multiple ways to provide charitable relief to those in need.
One way is by contributing stock gifts to 501(c)(3) organizations that are helping in the relief efforts. Donating appreciated stock can be a great tax strategy. That’s because when you donate shares of stock and other securities, you deduct the fair market value of the donated securities on your tax return and avoid paying taxes on the capital gain.
Let’s say you donate stock that you purchased for $1,000 and is now worth $5,000. By doing so, you will avoid paying capital gains tax on the $4,000 of appreciation and still get to deduct the FMV, or $5,000, of the stock. (Please don’t donate shares of stocks that have decreased in value. Instead, sell those shares, take the loss, and donate the net proceeds.)
If you donate property or goods other than cash, you may generally deduct the fair market value of the property. The rules relating to how to determine fair market value are discussed in Publication 561, Determining the Value of Donated Property. Don’t forget that the rules changed a few years back and you can only deduct goods that are in good condition or better. Please note that if you want to claim a deduction more than $5,000 for donated goods, make sure to get a written appraisal valuing the items being donated.
As the recovery process from the hurricane damage will take time, charities will need support over the long haul. Thus, you may want to set up recurring donations or give later in the year. For taxes, keep in mind that contributions are deductible in the year made. Donations charged on a credit card by December 31, 2017 are deductible in 2017 even if the credit card bill isn’t paid until 2018.
How much can you donate and still get the full deduction? Donations of money are deductible up to 50% of your Adjusted Gross Income (AGI). Donations of securities are limited to 30% of AGI. Any excess amounts not allowed in the current year can be carried over and utilized during the subsequent five years.
Unfortunately, scam charities sometimes do pop up in the wake of a tragedy. The IRS offers a tool, EO Select Check, that you can use to make sure the charity in question is an exempt organization that is eligible to receive tax-deductible contributions.