Explain what types of tax planning are available for taxpayers making charitable contributions.

Question

What will be an ideal response?

Answer 1

1. A taxpayer who plans to sell a substantially appreciated long-term capital asset and contribute the cash proceeds to charity should instead donate the property directly to charity. A direct donation will give the taxpayer a deduction equal to FMV of the property and will avoid a gain on the property's disposition. On the other hand, if a taxpayer is planning to contribute a capital asset that has declined in value, the taxpayer should sell the property, recognize the loss and contribute the cash.
2. Taxpayers who don't have any other large itemized deductions may want to bunch their charitable contributions into one year and then take the standard deduction in a year when they don't make substantial charitable contributions.
3. A contribution of long-term capital gain property to a public charity is subject to a 30% of AGI limit. An election can be made to have the property subject to a 50% of AGI limit. This election reduces the amount of contribution of the property's FMV by the gain that would have been realized had the property been sold. Thus, this election should only be made in special circumstances (e.g., the 30% limit applies and there is little difference between the property's FMV and its basis).