One of the major things that distinguish us as a great people is the generosity and philanthropy of Americans.  We are, very simply, the most generous people in the world (go to my Web site, click on News and then Charitable Gifting).

Although not the leading factor in our generosity, certainly the tax benefits afforded charitable contributions under the Internal Revenue Code are a contributing factor.  Here are the basics on optimizing your Itemized Deductions for your charitable contributions.

Most of us make our gifts to our church, synagogue, mosque and other charitable organizations in cash.  Always make your cash gifts to these charities by check so that you have your cancelled check to document the gift.  Additionally, to the extent that you make a single gift of cash or non-cash property to a charity that is $250 or more in amount, you will need a written substantiation of the gift documenting the purpose, amount and description of it.

Example:  Mark and Debbie contribute $10 per week to their church.  In addition, they make a one-time gift of $500 to the church as part of a fundraiser to add on a church building.  When Mark and Debbie compute their Itemized Deductions for the year, they may add a total of $1,020 ($10 times 52 weeks plus $500) as charitable contributions in the computation of their Itemized Deductions.  No written substantiation from the church is necessary with regard to the weekly gifts as no single contribution equaled or exceeded $250.  However, with regard to the single $500 gift, the couple will need to obtain written substantiation from the church that it indeed was a gift to the church and not a payment for some other purpose (for example, private school tuition that is not deductible).

How about non-cash charitable contributions?  Many of us regularly contribute clothing and other non-cash property to charitable organizations like Goodwill and the St. Vincent De Paul Society.  You may count the fair market value of this property at the time of the gift as part of your charitable contributions in computing your Itemized Deductions. You should get a receipt from the entity to which you are gifting the property.  Ideally, the charitable donee will provide some measurement of fair market value of the property.  Frequently, however, you will have to reasonably estimate the fair market value of the property on your own.  Remember it is the value at the time of the gift - not the original purchase price for the property – that is the correct number.

If all of your non-cash property gifts for the year in total exceed $500, you additionally will have to file a Form 8283.  The information requested is detailed, including a description of the property, the date of original purchase of it, and the original cost of it (go to Web site, click on Tax Planning then Forms and Instructions to see it). This Form 8283 is something we would rather not file if we do not have to.  Why?  For a lot of reasons, the less information we give the government the better.  A humorous example of one reason involves President and Mrs. Clinton.  Some political enemies got hold of an old tax return of the Clintons' pursuant to the Freedom of Information Act.  The Form 8283 filed by the Clintons that year detailed the fact that they were taking a charitable contribution deduction for gifts of used clothing – including underwear!

Example:  In addition to the $1,020 cash gifts that Mark and Debbie made in the prior Example, they additionally make gifts of clothing to the St. Vincent DePaul Society.  They received receipts from St. Vincent DePaul and the couple reasonably estimate the fair market value of the clothing at the time they gifted it to the charity to be $400.  In computing their Itemized Deductions for the year, Mark and Debbie note gifts of $1,420.  No Form 8283 needs to be filed with their Federal income tax return as their non-cash gifts ($400) are less than $500.

The charitable contribution deduction is a good one to utilize if we are trying to pump up our Itemized Deductions at the end of the year.  By making gifts late in the tax year, we can manipulate our Itemized Deductions right at year-end.  However, in this regard be aware of a few things.  Simply making a pledge or promise to make a gift to a charity is not enough.  You must deliver your check or non-cash property to the charity on or before December 31.  Actually making a gift with your credit card on or before December 31 will suffice.  Making a payment by credit card is not a promise to pay—it is an actual, immediate payment with borrowed funds.

Example:  Referring to the Example on page 30, the $500 one-time gift that Mark and Debbie contribute to their church fundraiser is not made by check but rather by credit card.  Their $500 contribution is made the year the credit card is charged, not when Mark and Debbie actually pay that credit card balance off.  Again, as before, we have a single gift equaling or exceeding $250, so written substantiation from the church documenting the payment as a gift is necessary.

There is a limit on how much of your charitable gifts you can deduct as an Itemized Deduction in a given tax year.  If you are making gifts of cash, you can currently deduct that cash gift to the extent it does not exceed 50% of your Adjusted Gross Income (see pages 9-10).  Any excess of your charitable contribution over 50% of your AGI may be carried forward for up to five tax years until used up (subject to the same 50% of AGI limitation).

Example:  Mark and Debbie make a cash gift of $60,000 to their church.  Their Adjusted Gross Income in the year the gift is made is $100,000.  In computing their Itemized Deductions that year, the couple may deduct $50,000 attributable to this gift (50% of their $100,000 AGI).  The excess $10,000 that is not currently deducted may be carried forward for up to five years until it is deducted subject to the 50% of AGI limitation in those future years.

If you own appreciated stocks or bonds that you have held for more than one year, Congress has provided a great tax break to encourage charitable giving.  Here it is.  Say you own stock that you bought for $100 five years ago that is now worth $1,000.  If you sold (rather than gifted) that appreciated stock, you will be taxed at long-term capital gain rates.  Even though the LTCG rate is very favorable (a maximum rate of 15%), it is still a tax we would like to avoid if we could.  If instead of selling that appreciated stock, you gifted it to your Church or another legitimate charitable donee, you would get gift credit based on the full fair market value of the stock even though you have never been taxed on the gain.

Example:  Years ago Mark bought Acme stock for $10,000.  It is now worth $40,000.  Mark wants to make a gift of $40,000 to his Church and fund the gift through the Acme stock.  One approach would be to sell the Acme stock for $40,000 and gift the $40,000 cash sales proceeds to the Church.  This approach would give Mark a $40,000 charitable contribution for the year, but he would also be taxed on a $30,000 ($40,000 selling price minus $10,000 cost) long-term capital gain.  Another approach would be for Mark to gift ownership of the stock to his Church without selling it.  Mark still gets credit for having made a $40,000 gift (the stock's full fair market value), but now he will not incur any capital gain.  This more favorable result would apply even if the Church, shortly after being gifted ownership of the stock, sold it in the Church's own name.

Remember if you take advantage of this wonderful tax planning opportunity, you will have to file the Form 8283 (if the property's value exceeded $500) and provide the details on the stock you are gifting.  Hopefully, you won't be trying to deduct any used underwear at the same time.

One possible hitch with this technique is the AGI limitation on the current deductibility of the gift.  Remember that we just noted a 50% of AGI limitation on the current deductibility of a cash gift.  When long-term capital gain property is gifted, the AGI limitation is reduced to 30%.  As with a cash gift, any excess gift may be carried forward up to five tax years and deducted in those future years subject to the same 30% of AGI limitations.

Example:  Say in the previous Example, Mark's AGI for the year is $100,000.  Although he has made a gift of $40,000, only $30,000 of it (30% of his AGI) is currently deductible.  The non-deductible $10,000 is not lost – Mark will be able to carry it forward for up to five years subject to the same 30% of AGI limitation on deductibility in those carry forward years.

For more details and examples of appropriate charitable contributions go to my Web site (http://www.personal.kent.edu/~maltieri/web/guide/home.htm), click on Tax Planning then IRS Publication 17, Chapter 26.  Also review Publication 526, Charitable Contributions.

NOTE:  A tax-oriented scam that appears to be growing in popularity is to incorporate yourself as a tax-exempt charitable entity.  The promoters of this hustle will provide you with step-by-step instructions on obtaining your tax-exempt status for a fat fee.  This is a con of the first order, and you are strongly advised to avoid this scheme like the plague.

Another variation on this theme, which is slightly more legitimate, involves the use of a charitable remainder trust or other forms of charitable "trusts."  This is slightly more legitimate in that the use of a charitable trust is a very legitimate estate-planning tool with certain high wealth individuals.  However, some "financial planners" are promoting the use of the charitable remainder trust for use by middle and lower-income Americans.  This is TOTALLY INAPPROPRIATE for the vast majority of Americans.

Remember, if we are talking about taxes (or financial matters generally) and the scheme being promoted sounds too good to be true, 999 times out of 1,000 it's a hustle.  I've heard some of these con artists on TV and on tape making their case.  They can be VERY good – looking like the boy or girl next door or maybe out of the church choir, intelligent sounding and so, so convincing.

Stay away from these people!  If it sounds too good to be true, IT IS!  Use your common sense in these situations.  Stay away from any form of "tax shelter" promotion.  Save the significant amounts of money you would end up paying to the promoters of these scams and invest it pursuant to the Retirement Planning or Educational Savings sections of this book.  You will be immeasurably better off.  Also, read the more detailed discussion of tax protester groups at page 42.