When you give a gift of long-term appreciated securities (stocks, bonds, mutual funds owned for more than one year), you benefit our community and realize tax savings. A charitable gift of appreciated stock is a smart way to make an investment in our community. Does this sound too good to be true?

Federal law permits taxpayers who itemize to deduct the current value of charitable contributions from their adjusted gross income. Your tax deduction, in most cases, is for the current fair market value of your stock. It includes both what you paid and your gain.

By contributing long-term appreciated securities to United Way of Greater New Haven you can:

• save current income for day-to-day needs because a gift of stock does not come out of your cash flow ;
• aggregate large gifts and make the transfer of stock worthwhile;
• save taxes two ways: reduce income tax and bypass capital gains tax;
• gifts of appreciated securities are deductible up to 30 percent of your adjusted gross income in the year of the gift (any excess can be deducted over as many as five succeeding tax years);
• you avoid the capital gains tax that would otherwise be due if you sold the securities for your personal benefit
• help more people with a larger gift;
• a gift of stock may allow you to make a larger charitable contribution than would be possible with cash or through payroll deductions;
• Lower the “cost” of your gift.

This table illustrates the potential benefit of gifts of long-term appreciated stocks and highlights some of the maximum available benefits. We strongly advise that you contact your accountant or tax advisor to determine the exact income tax effect of any donation.

Federal Tax Law as of 4/1/02

Effective January 1, 1994, no deduction will be allowed for any contribution of $250 or more that is not substantiated by a written acknowledgment from the donee organization. That acknowledgment must provide information on: (1) the money or other property contributed; and (2) any goods or services provided by the donee organization in whole or partial consideration for the contributed money or other property.

The responsibility for obtaining this substantiation lies with the donor, who must request it from the charity, and the substantiation must be "contemporaneous." That is, it must be obtained no later than the date the donor actually files a return for the tax year in which the contribution was made. For the 1994 tax year, IRS has provided transitional relief (Notice 95-15). For contributions of $250 or more made during the 1994 calendar year, a taxpayer who has not obtained the necessary contemporaneous written acknowledgment by the date specified, will be treated as having satisfied the requirements if (1) the taxpayer has obtained the acknowledgment by October 16, 1995, or (2) the taxpayer has made a good faith effort to obtain the acknowledgment by that date. An example of a good faith effort would be a letter sent by the contributor, to the donee organization, requesting an acknowledgment.

The Internal Revenue Service has issued "temporary and proposed" regulations that provide special rules for charitable contributions made through payroll deductions. For the purpose of payroll deduction, each deduction from a single paycheck is considered a separate contribution. Under the regulations, taxpayers may substantiate those contributions with a combination of two documents: (1) a document furnished by the employer that shows the amount withheld from wages; and (2) a document prepared by the donee organization stating that the organization does not provide goods or services as whole or partial consideration for any contributions made by payroll deduction.

Also beginning January 1, 1994, a charitable organization must provide a written disclosure statement to donors who make a payment, described as a "quid pro quo contribution," in excess of $75. This requirement is separate from the written substantiation required for deductibility described above. While, in certain circumstances, an organization may be able to meet both requirements with the same written document, an organization must be careful to satisfy the section 6115 (Internal Revenue Code) written disclosure statement requirement in a timely manner because of the penalties involved.

A quid pro quo contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the charity. Example: A donor gives a charity $100 in consideration for a concert ticket valued at $40. Of that $100, $60 would be deductible. Because the donor's payment exceeds $75, the disclosure statement must be furnished, even though the deductible amount does not exceed $75.

The required written disclosure statement must: (1) inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity; and (2) provide the donor with a good-faith estimate of the value of the goods or services that the donor received.

The charity must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. The disclosure must be in writing and must be made in a manner that is reasonably likely to come to the attention of the donor. For example, a disclosure in small print within a larger document might not meet this requirement.

In the Tax Reform Act of 1986, Congress created an alternative minimum tax (AMT), which applies to high-income individuals who significantly reduce their tax liability by using deductions, credits, exceptions and losses. The Omnibus Budget Reconciliation Act of 1993 allows a deduction for a contribution of appreciated property equal to the full fair market value of the contributed property. The deduction is extended to all gifts. This provision is effective for contributions of tangible personal property made after June 30, 1992, and contributions of other property after December 31, 1992.

Certain out-of-pocket unreimbursed expenses related to volunteering also are deductible. The purchase and upkeep of uniforms needed for volunteer service (for example, as a firefighter or hospital aide) are deductible, as well as the cost of travel connected with volunteer service for a charitable organization. The IRS allows 12 cents per mile for volunteers using a vehicle for charitable business (for example, driving disadvantaged youths to an event). Parking fees and tolls are deductible, as are reasonable payments for necessary meals and lodging during overnight trips while providing donated services.

1. This information was found in 1996 RIA, Inc., RIA USTR Income Taxes P1514 in the FED file of the FEDTAX library on Lexis Nexis.