A recent NPR program reported that a winning Keno card was left in a church collection plate. It was worth $4000.
Aside from any problems associated with verification, would such a donation, from gambling proceeds, be deductible the same way donated stock or other security would be?
I never played Keno nor do I expect to do so. But my curiosity is up.
The winning card creates a $4000 (minus the cost) gambling income. The donor would claim it, but then get a $4000 charitable deduction write-off if they itemize. If they don't itemize, they get to claim the income but no write-off, in which case the kindness of passing the winnings along as a unclaimed card is better for them.
The allowed deduction for appreciated property held less than one year, which I am assuming, is the lower of FMV or donor's cost basis.
And if held more than one year, the Keno rules most likely state the prize is lost for not being cashed sooner.
For clarity purposes:
If you declare the income in the same year that you make the contribution, no adjustment to FMV is made. In other words, if the income is reported on the 1040 and the contribution is made in that tax year, then a charitable contribution deduction at FMV is allowed on Schedule A for the appreciated property.
However, in this instance, I don't believe there is any income to declare as the Keno card was never authenticated as the winning ticket before it was given to the church. As such, there was never any constructive receipt of income.
The end result of this is that any deduction would be limited to cost basis.
,snip>
Such concepts prompted me to post. To simplify the discussion, assume a zero cost basis. Keno winnings could be very large when compared to the cost of getting in the game by buying a card. The same would be true if you got really lucky with a penny stock. Is there an essential distinction between buying and contribution an appreciated Keno card compared to doing the same with an appreciated penny stock?
If I understand this response, it would seem absolute folly to declare income and then then use the standard deduction. It seems that by giving the Keno card or the penny stock, you would not have realized income to report. But the Internal Revenue Code seem to be beyond my comprehension.
I thought that contributing appreciated stock not only avoided paying tax on the capital gain tax but also converted that gain to a deduction. Is that no longer the case?
While I always respect others' opinions, and admittedly, the tax code is beyond most people's comprehension (me included), I can't fathom how FMV or time held would come into play on a gambling winning.
I agree with you that donating the wining ticket/card is the better way to go, but keeping it anonymous. No double dip, can't get a 'cash receipt' to claim deduction without claiming the gambling income.
That is still the case, as long as you have held the stock for more than a year (so you would pay long-term capital gains if you sold.) As pointed out above, holding the winning Keno card for more than a year before it is cashed in may make it worthless.
Suppose you held stock for less than a year and it went up a lot, say from a buy-out or some other windfall. What would be the best strategy for donating such stock?
In recent times, I have gone through some crazy scenarios in order to save on tax. For example, I keep rather accurate records on when I bought some of my mutual fund shares. I was able to sell some of these shares and buy a similar fund while generating a capital loss to compensate for some of my taxable gains.
I hate jumping through such hoops and am willing to pay my fair share of tax.
What is your objective?
If you donate the stock directly, the charity gets the FMV and doesn't pay any tax, and you get a deduction to the extent of your basis in the stock.
If you sell the stock and donate the proceeds, the charity still gets the FMV and pays no taxes, while you pay short-term capital gains on the gain and take a deduction of the FMV. These two cancel each other out if your basis was small enough, and you are left even except for secondary effects (like taxable Social Security or Medical deductions) that can cost you more due to an inflated AGI.
Or you can sell the stock, pay the taxes, and keep the rest of the money.
Hold it for the rest of the year.
Seth
I am certain there are sets of facts an circumstances that would permit it. Unfortunately, they are all facts and circumstances that would be outside of the control of the taxpayer.
Dick
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.