There was a lot of charitable giving in the U.S. before the federal income tax (1913) and a federal income tax charitable deduction (1917) came along.
Example: As a young person, I made great use of a public library in Aurora, Illinois—one of the many such libraries funded by Andrew Carnegie. Carnegie funded these libraries because he believed in public education. There was no federal income tax when Carnegie made these charitable gifts.
In some ways, the charitable deduction has corrupted and distorted charitable giving.
How? It has caused many tax professionals (i.e., advisors to donors) to believe the only good charitable gift is a gift that qualifies for a charitable deduction. In fact, there are lots of worthy gifts that qualify for little or no charitable deduction.
Here are some examples:
- A gift of highly appreciated stock held short-term. The income tax charitable deduction is limited to cost basis.
- A gift of a partial interest, such as a gift of office space. No charitable deduction.
- A gift of professional services. No federal income tax charitable deduction.
Recommendation: The new world of non-itemization that many donors inhabit needs to be understood well by gift planning officers and advisors to donors.
This world opens the door to gift planning possibilities that formerly were considered poorchoices from a tax standpoint but that now can be quite worthwhile.
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