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Charitable contributions are cash and non-cash giving that are directed to not-for-profit charities. Most people are familiar with deducting cash contributions to churches and other non-profit organizations. Charitable contributions, to be income tax–deductible by the estate or trust, must be made from gross income. When a flow-through entity is the source of the deduction, the entity’s gross income must be in excess of the contribution deduction.[1] Charitable contributions are donations which are given to charitable causes. Donating funds to charity is often regarded as a positive character trait, and in addition to being considered a decent thing to do, charitable contributions can also carry some tax advantages. The contributions can be monetary or physical property.
Donations may be deducted as a business expense if they are “ordinary and necessary” in the conduct of the taxpayer’s business. Generally, contributions to 501(c)(19) organizations are deductible as charitable donations for federal income tax purposes if at least 90% of the members are war veterans.[2] Donations of cash and property to qualified non-profits are tax deductible. To be deductible, taxpayers must keep records of their contributions, especially of any gifts over $250.[3]
Business owners who want to generate liquidity for their ownership interests often look at selling to an employee stock ownership plan (ESOP) as the most attractive mechanism. While this is often the case, the contribution of stock to a charity, either directly or through a charitable remainder unitrust (CRUT), can be an attractive alternative or adjunct, especially for sellers who have charitable intentions.[4]
[1] http://www.nysscpa.org/cpajournal/2004/804/essentials/p38.htm
[2] http://www.lectlaw.com/files/tax13.htm
[3] http://www.voxeu.org/index.php?q=node/2805
[4] http://www.nceo.org/main/article.php/id/41/
