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December 25, 2005 -- In the spirit of the holidays I’ve been doing a lot of charitable giving. What are the rules regarding my contributions for being tax deductible?

There is a lot more to charitable giving than some people know. For example, you can benefit a family member and a charity at the same time and still get a tax break. You can give appreciated property to a charity without being taxed on the appreciation. These benefits can be achieved only if you meet various requirements including substantiation requirements, percentage limitations and other restrictions.

First, the basics: Your charitable contributions can save income tax only if you itemize deductions. Once you do, the amount of your savings will vary depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes. To get a current deduction, the gift must be to a qualified organization and must not exceed certain percentage limitations. In ordinary situations, however, the limitations won't present a problem because for public charities you can give up to 50 percent or 30 percent of your adjusted gross income depending on the type of property contributed. The 50 percent limitation has been removed for the period of August 28, 2005 through December 31, 2006. This means you could donate 100 percent of your adjusted gross income for that period. A nice little gift to taxpayers!

In contrast, the substantiation, will affect many charitable contributions. While a canceled check or receipt normally is all you need, you cannot deduct a gift of $250 or more unless it is substantiated by a written acknowledgment from the charity.

What about services rendered to a charity? They are not deductible, but unreimbursed expenses that you incur while performing these services are deductible such as meals, and travel costs. This means that if you traveled to Louisiana to assist the victims of Katrina you are entitled to a deduction for your mileage, lodging, & meals.

What if you get a benefit in return from the charity in exchange for making the gift? Generally, your deduction will be reduced by the value of the benefit unless the item is considered to be insubstantial in relation to your contribution.

Now for special techniques: One way to help a family member and a charity at the same time is to place cash or property in a trust, have the income from the trust be paid to your child for a set period, and then have the trust property go to a charity. Or you can set up a trust so that the charity gets the income interest and your child gets the remainder. Keep in mind that the trust has to be set up in a specific way to comply with IRS guidelines. You must use a trust that satisfies the IRS requirements for a charitable remainder unitrust, a charitable remainder annuity trust or a pooled income fund. There is only one donor in the case of a charitable remainder annuity trust or unitrust, whereas pooled income funds involve commingling of funds from several donors. In that sense, pooled income funds offer better protection in the form of greater diversification.

There are other special charitable giving techniques beyond the usual gifts of cash. These include, among others, a bargain sale to a charity, a gift of a remainder interest in your residence and a transfer to a charity in exchange for an annuity.

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