How to reduce the tax cost when an individual wants to benefit a charity

Article Abstract:

To make intelligent planning decisions regarding charitable donations, limitations that could result in tax benefit disallowances must be understood, and strategies followed to fully utilize charitable deductions. Gifts may be either property or money, but not services, and may be donated to any organization that qualifies in any one of ten general requirements. Specific limitations on deductible donations depend upon the type of property donated, and the circumstances of donation, but there are also overall limitations imposed, such as the 50 percent deduction allowed based on adjusted gross income. Examples of these limitations are given and attention is paid to special considerations and to the proposed Tax Reform Act of 1986.

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Bargain sale redemption avoids dividend treatment while making charitable contribution

Article Abstract:

The bargain sale redemption technique, in which a closely held corporation may redeem stock from a tax-exempt charity after a shareholder bargain sells part of his stock, can produce both a bail-out of corporate earnings and a proportionate charitable deduction. Advantages: cash is stripped from the corporation, and proceeds are a means for diversification and liquidity; the minimum tax cost is preferable to a dividend payment; charitable motivations are satisfied; cash is obtained without a loss of control; and accumulated earnings are reduced. Guidelines for properly structuring this approach are given, and the Internal Revenue Service's four arguments when challenging such tax planning techniques are analyzed.

Tax accounting, Dividends

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How corporations can take maximum advantage of the charitable contribution deduction

Article Abstract:

Charitable contribution rules for businesses remain intact, despite significant changes under the Tax Reform Act of 1986. Section 170(a) generally permits deduction of a charitable contribution only for the year in which it is actually made, but a limited exception is allowed for accrual-basis corporations. The corporate charitable deduction limit is 10 percent of taxable income for that year, before certain deductions. Tax planning approaches for circumventing the 10 percent limit are described.

Tax deductions

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