How to Make a Monetary Gift Before Taxes
Most gifts made are after taxes, meaning you must still pay income tax on that portion of your income you gave away as a gift. For gifts of cash or property, whether it can be deducted from your income before tax depends on the nature of the recipient, and is subject to certain limitations. Gifts of property can be before-tax if you give property that has appreciated in value and your deduction amount includes the capital gain. Even regular after-tax gifts can create an additional gift tax liability if they exceed certain annual limits.
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Instructions
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Make a donation to a charity. The only organizations that can receive tax-deductible gifts are those officially recognized by the IRS under 501(c)(3), 501(c)(4), 501(c)(6), or 501(c)(19). Additionally, 501(e) hospital associations, 501(f) educational cooperatives, and 501(c)(1) corporations acting as instrumentalities of the U.S. can receive deductible contributions.
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Make the right kind of donation. Gifts to some groups are tax deductible only if they are of a certain nature. 501(c)(13) nonprofit cemetery companies can receive tax-deductible contributions if they are given for care of the whole cemetery and not just a particular plot. Gifts to fraternal societies under 501(c)(10) or 501(c)(8) are deductible if they are used for charitable purposes allowed under 501(c)(3).
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Stay under the limit. For most people the limit on tax-deductible gift giving in a single year is 50 percent of their adjusted gross income (Form 1040, line 38). Farmers and ranchers can deduct 100 percent of their income through qualified gifts for environmental conservation.
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Limit the giving to certain organizations to 30 percent of adjusted gross income. You cannot deduct more than 30 percent of your adjusted gross income (Form 1040, line 38) for gifts made to organizations described above in step 2, including veterans' organizations, fraternal societies, nonprofit cemeteries, and certain private foundations.
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Limit giving off capital gain property to 30 percent of adjusted gross income. If you make a gift of property the value of which you deduct represents a capital gain, this is defined as capital gain property. This occurs if the value at the time of the gift (your deduction) is greater than what you paid for the property. If the capital gain property is gifted to an organization in step 2, you can only give up to 20 percent of your adjusted gross income before taxes.
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Tips & Warnings
Gifts to anyone not listed in step 1 or 2 are not tax deductible. A nondeductible gift that exceeds the annual exclusion limit ($13,000 in 2010) necessitates filing the gift tax return, Form 709. You can, however, give gifts up to the limit to as many different people as you like, and your gift to a trust can be up to the exclusion limit multiplied by the number of beneficiaries before triggering the gift tax. You can also pay someone's medical or tuition bills in any amount without triggering the gift tax if the money is paid directly to the institution or health care provider and not to the beneficiary of the gift.
