Posts Tagged ‘charitable contributions’

Tech point re: charitable contributions …

October 24, 2011

I know that I said that Part 5 of my Buffett tax analysis would be my last. but …

First, I got input from a loyal reader that my analysis was wrong because “only 5% of charitable contributions can be deducted in 1040s”

That sent me back to the tax code.  Specifically to Publication 526 : Charitable Donations.

Keeping in mind that HomaFiles doesn’t offer tax or investing advice, here’s the law:

The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income depending on the type of property you give and the type of organization you give it to.

Here’s the English translation.

In general, for all typical charities,e.g. churches, schools, hospitals, disease-causes, a taxpayer can deduct 100% of his charitable … but there’s a ceiling …. the total amount of charitable deductions is limited to 50% of the taxpayer’s AGI.

So, if a taxpayer had $100,000 AGI, he can write $50,000 in  checks to qualified charities and deduct all $50,000.  If he writes checks for $60,000 … he can deduct only $50,000.

The major exception: donating appreciated assets (think “stocks).  A taxpayer can claim a charitable deduction for the fair market value of the asset, pay no capital gains, and deduct up to 30% of his AGI.

Things get a bit trickier if there are both cash donations and appreciated assets in the mix.

The general  takeaway: up to a total of 50% AGI, all charitable contributions can be deducted ,,, slightly less if the donations are stock not cash.

That said, the Buffett analysis survives intact.

We estimated charitable contributions at $20 million …about 1/3 of Buffett’s $63 million AGI … so, based on our anlysis, he can deduct all of his charitable deductions, sheltering all or most of his ordinary income.

Whew.

* * * * *

Separately, I got a few emails and replies commenting on the HomaFiles-coined GBSR™ – “Give Back to Society Rate” … the sum of fed & state taxes, and charitable contributions divided by AGI.

Some of the emails said “you’re on to something”, so I’ve trademarked the metric by adding the legal “TM” super-script.

Gotta protect your intellectual property, right?

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