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Now is the time to give – before the year ends. Have you ever heard the phrase, “It’s better to give than to receive”? Well, even if you have not, the IRS definitely has. This is evidenced by tax deductions allowed for donations made to qualified charities found in the Internal Revenue Code and U.S. Treasury Regulations.
According to the Internal Revenue Code and Treasury Regulations, a tax deduction is permitted for the payment of a charitable donation made within the taxable year. A donation is typically considered to be made when the donor transfers control of the gift to the charity. This basically means that it doesn’t count if you promise to give, you have to actually give.
The effective date of the donation is important to ensuring your donation is tax deductible for the intended taxable year. Since the effective date of the donation is determined by the method of delivery and form of the donation, it is important to understand the ways to make donations.
Cash – A donation of cash is effective when the donor actually delivers it to the charity, regardless of whether the donor is an accrual basis taxpayer.
Check – A donation to a charity made by check is effective when the check is delivered or mailed, as long as the check clears in due course.
Credit Card – Nowadays many charities accept donations made by credit card. In this case the gift occurs when the donor actually becomes indebted to the credit card issuer.
Stocks or Bonds – If you make a donation to a charity in the form of stock or bonds, the donation is effective when the donor unconditionally gives up control of the securities and no longer has the ability to revoke the authorization to transfer them. The deduction for publicly traded securities generally will be the average high and low trade on the day of the gift. It is important to note that your tax deduction for the charitable donation will be based on the value of the security on the date the transfer is deemed to occur, not on the day you give instructions to your broker.
Real Estate – If you donate real estate to a charity then the value of the real estate is deductible for the year in which the real estate is transferred under applicable state law. In New York, the transfer is deemed complete when the deed is delivered.