Charity Tax Law
Charitable Donation Tax Law
Each of these groups of individuals requires a separate answer. For those who purchased tickets to the event, though receipts may be provided (and might be mandated by law), there was no gift made — there was a material quid pro quo received by the purchaser, and therefore the cost of the ticket is not considered a charitable gift nor is it tax deductible (Hopkins 2005, pp. 58). The same can basically be said of those who purchased art through the auction process, though there are complicating factors. If a purchaser paid more than fair market value for a particular piece, the difference may be tax deductible (Hopkins 2005; pp. 126). Due to the auction process, however, fair market value would most likely be established as the purchase price, rendering this exception moot.
This applies to the artist as well; assuming that the money for the sale went to the charitable organization, the donor of the art is entitled to a write-off of the fair market value of the donation, regardless of its value at the time it was acquired/created by the donor (Hopkins 2005, pp. 126). They, and not the purchaser of the art, are actually out the value of the artwork, and thus the deduction applies to the artist/gallery, and not to the purchaser or doubly to both.
Case Study 2
Morgan should definitely consider making a donation in the form of stock to the charitable organization. This could result both in money saved and a greater donation.
Morgan’s interest in Mega Bank Corporation has a long enough standing to become a long-term capital gain asset (Hopkins 2005, pp. 130). Morgan would have to pay capital gains taxes on the dividends and increased value of the stock for any shares still held by the end of the tax year. A charitable contribution of the stock, meanwhile, could be deducted at the fair market value of the stock, because the capital gain is not sort term (Hopkins 2005, pp. 126; 130).
This means that every one-hundred dollars worth of stock donated (i.e. one share) could be considered a full one-hundred dollar gift, despite the fact that Morgan’s cost basis in the stock is only one cent, or one ten-thousandth of the stock’s value. A donation worth twenty-five thousand dollars to the organization would actually cost Morgan twenty-five dollars’ worth of stock; though they would be losing the value of the stock, they would only be spending a penny per share. This has the advantage of avoiding capital gains taxes and providing a charitable tax write-off, and Morgan might consider a bigger donation due to the wonderful thinking of the intelligent head of this charitable organization.
Case Study 3
This case is somewhat more complex than the two preceding, in that a great deal of variation in the tax implications exists depending on the type/purpose of the charitable organization and its plans for the property. If a house on Cape Cod somehow suited the tex-exmpt purpose of the charitable organization (e.g. It was used as a hospice for sick children that the organization cared for), then the amount of the deduction Mr. Kennedy could claim would be equal to the fair market value of the house, less the mortgage, or $700,000 (Hopkins 2005, pp. 136).
If, as is more likely, the donation cannot be used by the organization directly for its charitable purposes, there must be a long-term capital gains deduction for the amount of appreciation of the cottage. Mr. Kennedy’s deduction would therefore be $350,000, or the amount he had actually paid for the house ($400,000 less the $50,000 still remaining on the mortgage). This is true whether the charitable organization uses the property to generate long-term income or sells it soon after receiving the donation (Hopins 2005; pp. 136). The proper response in this situation would be to advise Mr. Kennedy to consult his accountant/tax attorney; he might be far better off selling the property and making a cash donation to the organization.
Case Study 4
Unfortunately, Dr. Nicely will have to be informed that under Section 526, the value of volunteer hours is expressly ineligible for a deduction. Certain expenses related to the volunteerism can be deducted however; the doctor is entitled to fourteen cents per mile (as of 2007) for actual costs of gas driving to and from work, or the actual cost of transportation provided receipts are furnished at the time of filing (Teitell 207). If the doctor used any of his own consumable equipment or resources — cotton swabs, tongue depressors, syringes, etc. — these can also be deducted, and receipts will only be necessary if the deduction amount is $250 or greater (Teitell 2007). Only actual expenses related to the volunteer work may be recovered however, and not the estimated or real value of the time volunteered itself.
Hopkins, B. (2005). The tax law of charitable giving. Hoboken, NJ: Wiley.
Teitell, C. (2007). “Tax Deductions for Volunteers.” The Grantsmanship Center. Accessed 15 October 2009. http://docs.google.com/gview?a=v&q=cache:qTmnQFy3Lw0J:www.tgci.com/magazine/Tax%2520Deductions%2520for%2520Volunteers.pdf+deduction+for+volunteer&hl=en&gl=us&sig=AFQjCNESzXN7zd7Kz2TvwfaNlFU_hAiV7w
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