Charitable giving is one of the most satisfying ways to trim your tax bill: You get to help a worthy cause, and the worthy cause helps you back. But if you're planning to do something more complicated than writing a check, you'd better start talking to a professional tax adviser pronto.
It's especially important if you're thinking of donating paintings or some other "tangible personal property," such as sculpture, manuscripts, or antique furniture. Unless Congress grants an extension, as museums are urging, you have only till the end of 1991 to take advantage of a one-year "window" that spares you paying the alternative minimum tax (AMT) on the difference between a work's original cost and the current, higher value you deduct from your regular tax. You need an independent appraisal of any items valued at more than $5,000.
GIFT CERTIFICATES. To qualify, you must give to a charity -- typically a museum -- that can use the item as part of its regular work. Donating art to a soup kitchen won't work. But if yours isn't a megabucks donation, you don't have to rush. To avoid paying the AMT, just be sure to make the contribution in a year when your total deductions are not going to exceed the $40,000 exemption.
Giving away stock that has appreciated is a more common yearend maneuver. If you have held it for more than one year, you get a regular tax deduction for the full market value (although securities aren't eligible for the one-year AMT escape hatch). Handing over stock is much better than selling it at a profit and donating the proceeds, because you avoid the capital-gains tax that a sale would entail.
Giving shares requires foresight. The gift doesn't count "until the day the securities are actually transferred on the books of the issuing corporation" -- and how long that takes is "unpredictable," says a brochure on planned giving from Washington University in St. Louis.
But what if you want to give away a loser? Don't do it, says Bob Coplan of Ernst & Young. "It's better to sell, take your loss for tax purposes, and then give the proceeds" for a full charitable deduction, too, he says.
Donating cash to a charity gets tricky around yearend, too. A check mailed on Dec. 31 counts for 1991, but not one that you hand over in person a day later, according to Washington University. By contrast, an Ernst & Young publication says, a donation charged to your credit card this year "will be deductible in 1991 even though you don't pay the charge until 1992."
The charitably inclined can come out ahead on taxes, too, by planning for more than one year at a time, suggests Arthur Andersen's Michael Janicki. "Many people give the same amount of cash each year," he says. But the deduction means more in a year when they're paying regular tax at 31% than at 28%.
You can arrange with many charities to get more from your gift than a tax deduction and a sense of doing the right thing. Many institutions, ranging from universities to environmental groups, will put your gift in what's known as a charitable remainder trust, which pays you income for the rest of your life.
LIFE BENEFIT. The charity keeps the money when you die, but you don't have to wait that long to claim a deduction. A federal formula, based on your life expectancy and the plan's expected payout, limits the upfront deduction to part of the amount you contribute. Still, "socking away $100,000 or so makes it worthwhile," Coplan says, and some institutions will work with lesser sums.
For instance, a 60-year-old who puts a $50,000 corporate bond paying 10% interest into a charitable remainder trust gets $5,000 a year plus a onetime tax deduction of $11,337, says Ernst & Young. If a top-bracket donor funds the trust with a municipal bond paying 7% tax-free interest instead, spendable income will be about the same, while the upfront deduction will nearly double. That's because tax-exempt muni-bond interest doesn't count against you in the federal formula.
Such wrinkles -- and a variety of fund types -- are reason enough for careful consultation with a tax adviser. When you're entrusting a big chunk of your future income to a charity, you'll want to feel as comfortable with the tax details as with the institution's philosophy.