Archive for the ‘charitable contributions’ Tag

Donating Your Bald Eagles and Blue Jeans

Originally published in the Pacific Grove Hometown Bulletin

August 1, 2012

If you missed the July 22 issue of the New York Times, you missed a great article about estate tax the IRS is trying to levy on a piece of art that includes a genuine stuffed bald eagle.  The IRS has valued the piece of art at $65 million and wants the heirs of New York art dealer Ileana Sonnabend to pay approximately $29.2 in estate tax.

The rub, however, is that it is illegal to sell the piece of art due to the 1940 Bald and Golden Eagle Protection Act.  The heirs and their appraiser are of course contending the value is $0 since they cannot legally sell it – how can it have value?  The IRS Art Advisory Panel reportedly called it a “stunning work of art” and is contending that it could be sold illegally on the black market and therefore has value.  It sounds to me like our government wants to have it both ways – you cannot sell it but, we are still going to tax you as if you could.  I think our tax policy should promote legal activities!

The end of the article mentions a possible charitable donation instead.  I suppose this could be an option for the heirs.  Unfortunately, the estate tax would not be eliminated, since the heirs would be the donors and not the decedent.  They would also have to be able to absorb a $65 million donation in a six year period against their income.  IRS law allows you to make a charitable contribution up to 50% of your income each year which can be carried over for up to five more years.  After that, you lose the rest permanently.  One strategy for large noncash gifts is to give a partial interest in the item each year and loan the rest to the charitable organization.  This way, you do not lose any of the valuable deductions.

It is important to remember that current IRS law requires an appraisal for donations over $5,000.  This would also include multiple gifts during the year of similar items that add up to over $5,000.  So if you are taking lots of trips with household items and blue jeans, just make sure it does not go over $5,000 during the year.  It is hard to get an appraisal on a pair of jeans you donated eight months ago.  Oh, and be sure to get your charitable gift receipt!

Regarding the bald eagle art – I sure am glad Mrs. Sonnabend did not leave it in her will to me –   sounds more like a white elephant from my perspective!

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Why You Should Donate Appreciated Assets Instead of Cash

Originally published in the Pacific Grove Hometown Bulletin

March 7, 2012

Last issue I spoke about the issues surrounding charitable deductions for donated goods or services.  I mentioned at the end of the article a much better way of making donations rather than through the contribution of goods, services, or even cash – that way is through  the donation of appreciated assets.  I will use stock in my explanation below, but keep in mind this same principal generally applies to any appreciated assets including mutual funds, real estate, art work, collectibles, etc.

The donation of appreciated assets, such as stock, is an incredible tool if you 1) have some, or 2) can plan to have some for donations down the road!  Donating appreciated stock is like having your cake and eating it too: you basically get two tax benefits.  Here is how it works.  Let us assume you buy $1,000 of stock, and over time, and after a treacherous dip to $400 (!), it rebounds and climbs to $1,500.  Then let us assume your favorite charitable organizations need funds.  You could sell that $1,500 of stock and give the cash proceeds to the organization.  You would  get a $1,500 charitable donation, but you would also have a taxable gain of $500 ($1,500 sales price less $1,000 cost) since you sold the stock.

Instead of selling the stock, let us assume you transferred the stock in-kind to the charitable organization.  You still get the $1,500 charitable donation but you do not have to pay any tax on the built-in-gains of $500.   This could be a huge benefit, especially if you have stock that has appreciated substantially over many years.  You would be much better off making your charitable contributions in this manner, rather than writing checks.

For those with no appreciated stock, long-term planning might suggest opening a separate brokerage account and investing money each year in growth stocks to be used in the future for making donations in lieu of your less favorable cash.  This may take a number of years to achieve, but eventually you could turn the tables and find yourself making your larger donations in appreciated stock, saving you even more tax.

Keep in mind, if you plan to donate something other than financial assets that have a readily determinable value, you would typically need an appraisal if the value is over $5,000.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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