Almost always, charitable contributions will reduce your taxes. Thus, the higher your tax bracket, the lower the after-tax cost of a charitable contribution. As a result, you may find that you can contribute more on an annual basis than you originally thought.

Giving Cash
Suppose you would like to make a $10,000 gift to your favorite charitable organization. If you write a check for $10,000, you will receive a $10,000 charitable income tax deduction. If you are in a 35% income tax bracket (federal and state) and itemize your deductions, you will reduce your taxes by $3,500 ($10,000 x 35%). The net cost of your gift will be $6,500 ($10,000 - $3,500).

Federal Tax Bracket Contribution of Cash
 Simple Tax Savings Net Cost of the Donation
35.0% $10,000 $3,500 $6,500

Giving Appreciated Securities
Now, suppose instead of giving cash, you donate $10,000 of publicly-traded stock you purchased ten years ago for $2,000. First, just like a gift of cash, you will be able to claim a $10,000 income tax charitable deduction, thereby reducing your taxes by the same $3,500.* In addition, you will avoid paying the capital gains tax you would have paid if you had sold the stock rather than giving it to charity.

If you sell the stock, you will realize an $8,000 long-term capital gain. If you are in a 15% capital gains tax bracket, you will pay $1,200 ($8,000 x 15%) in capital gains tax. However, by donating the stock instead, you will forever eliminate this potential tax liability.

Federal Tax Bracket Contribution of Appreciated Stock
 Simple Tax Savings Capital Gains Savings Net Cost of the Donation
35.0% $10,000 $3,500 $1,200 $5,300

By giving stock instead of cash, the net cost of your gift will be further reduced from $6,500 to $5,300.

IRS Definition of Charitable Giving
For tax purposes, the Internal Revenue Service defines charitable gifts as complete and irrevocable transfers of money, property or other assets to IRS-recognized charities.

Remember, in order to receive tax-saving benefits from giving to charitable causes, your gift must be given completely -- generally with no strings attached -- and irrevocably (it cannot be reversed or withdrawn) to an IRS-recognized charity.

There are some financial incentives involved in giving to charitable causes. If you give to charities recognized by the Internal Revenue Service, such as NPT, you can:

  • Give gifts without paying any gift taxes on the gifts.

  • Receive a federal income tax deduction for your charitable lifetime gift, if you itemize charitable deductions on your tax return and keep receipts.

  • You can receive a federal estate tax deduction after death if you've made charitable gifts to IRS recognized charities through your will, trust or beneficiary designations.

  • The sale of some of your assets may result in significant capital gains tax. It is possible to reduce or eliminate capital gains tax on assets gifted to IRS recognized charities. This is a very popular incentive for people who face significant capital gains taxation on the sale of their assets.

* The amount of charitable deduction you can claim in any one year is limited to a percentage of your adjusted gross income. For gifts of cash to public charities, such as National Philanthropic Trust, the limit is 50% of your adjusted gross income. For gifts of long-term capital gain property, the limit is 30%. In both cases, any deduction that exceeds the amount you can claim in the year of your gift due to these limitations can be carried over up to five additional tax years.