Charitable Contributions and Deductions Flashcards
Qualified entities
-US. DC, state or possession of US, political subdivision of state/possession
-corporation, trust, community chest, fund, foundation created/organized under the above
- post or organization of war veterans
- domestic fraternal society, order, or association
- Certain cemetery companies
Public charities
Receives support from public:
Churches or conventions and associations of churches
Educational institutions that normally maintain a regular faculty, curriculum, and regularly enrolled students
Organizations such as hospitals and medical schools, whose principal function is medical care or medical education and research
Government-supported organizations that exist to receive, hold, invest and administer property for the benefit of a college or university
Any qualified governmental unit
Organizations that normally receive a substantial part of their support from either a governmental unit or the general public
Certain private operating foundations
Private Charities
Controlled by group of individuals
Proof of contribution
Charitable gifts made to qualified organizations qualify as tax deductions; however if single gift >$250, need receipt
Application of carryovers
Contribution over deductible gift limit may be carried over for subsequent 5 years
charitable trust
vehicles for taxpayers to make gifts to charities while retaining an economic interest in the trust assets
Charitable Remainder trust
Charity receives the remaining trust/corpus while noncharitable beneficiaries receive annuity/unitrust payments
CRAT: Charitable Remainder Annuity Trust
Payment of fixed amount annually to noncharitable beneficiary (up to 20 yrs): if income is insufficient, then the difference is paid from cap gains/principal; of income > amount required, then excess income is reinvested in trust.
Deductions computed year funds are irrevocably placed in trust and measured by PV of charity’s right to receive assets upon death/end of term
CRUT: Charitable Remainder Unitrust
payment of periodic sum, usually percentage of trust assets to noncharitable beneficiary
CLT: Charitable Lead Trust
charity receives annual payments and noncharitable beneficiary receives remainder interest
CLT: Charitable Lead Trust
Pooled Income fund
grantor receives variable payment each year, avoids cap gains on appreciated securities and allows donor to take partial tax deduction and generate lifetime income for 2 beneficiaries
Able to deduct portion of PIF account contribution and avoids cap gain taxes on LT appreciated securities
Contributions by Business Entities
Increased deduction available for
- property used to care for the ill, needy, or infants
- scientific research property used by colleges or universities for research and experimentation, and
-computer technology, software, and peripherals donated to educational institutions for use in grades Kindergarten through 12.
Amount of deduction=donor’s adjusted basis for property +.5 excess of property’s FMV (deduction must not exceed twice property’s adjusted basis)
Corporations using accrual method of accounting may accrue contribution deduction in the year preceding payment if board of directors authorizes payment before end of tax year and contribution is made within 2.5 months of end of tax year
Special Rules
-Pledges made by an accrual method corporation (owners of closely held corporations prefer to make charitable donations through their controlled corporation because the corporation can deduct the contributions)
-Limitations applicable to corporations: 25% of the corporation’s taxable income for the year, without regard to dividends received deduction, NOL/CL carrybacks, or any deduction for charitable contribution itself
50% Limitation
individual’s charitable contribution to public charities is 50% of AGI, excess may be carried forward and deducted in subsequent 5 years
(cash contributions have 60%AGI limitations and applies in 2023
30% Limitation
contributions of capital gain property to public charities valued at FMV, subject to 30% AGI limit. Does not apply if:
-capital gain property/tangible personal property is donated to a public charity and not put to related use, in which case the amount of contribution is lesser of FMV/basis.
-taxpayer elects to reduce deduction by cap gain amount, then 50% limitation is used
20% or 30% Limitation
Contributions of capital gain property to private non-operating foundations are limited to the lesser of 20% of the taxpayer’s AGI or 30% of the taxpayer’s AGI, reduced by any contributions of capital gain property donated to a public charity.
Private pass-through foundations
Taxpayer can make deduction up to 50% of AGI if making a charitable contribution to a non-50% Limit organization (private foundation), and taxpayer would have to elect lower of FMV/Adjusted basis
applying deduction limitations
cash contributions subject only to 60% AGI limitation are accounted for before the contributions subject to 30% of AGI limitation, the lower of the calculations is the deductible amount
Compliance
If contribution in cash, then retain evidence of reliable written records of name, date and amount. If non-cash, them maintain records of name & address, date & location, description, FMV, method of FMV and signed copy of appraisal
If >$250, need written acknowledgement by donee organization
If >75 quid pro quo, then donee org must provide written statement indicating deduction amount is limited to excess value over value provided by organization
During the past year, Martha traveled 12,000 miles by automobile while performing charity for a public charity, which cost her around $2,000. She is involved in a door-to-door campaign that involves the promotion of AIDS awareness among people. According to the automatic mileage method, what can she deduct?
Using the automatic mileage method to compute the charitable deduction, Martha can deduct $1,680 (0.14 x 12,000).
Complete interest
donor’s entire interest in the property
Statutory exceptions to deductibility of gifts less than complete interest
- certain reminder interests to trust
-remainder interest in personal residence/farm or land for conservation
-undivided interest in property
-partial interest if transferred to trust
Deductions to private non operating foundation
Other than certain qualified stock, then deductions is FMV reduced by capital gain if property were sold at FMV sold on date of contribution (adjusted basis)
Contribution of capital gain property
Amount of donation of capital gain property is its FMV (held over 1 year, if less or capital loss, then considered ordinary income property)
Unrelated-use property
capital gain property that is also used as tangible personal property, contributed to a public charity and used for purposes unrelated to charity functions. Amount= adjusted basis
Contribution of Ordinary Income Property
Usually adjusted basis regardless of charitable organization
Ordinary income includes inventory, works of art or manuscripts created by the taxpayer, capital assets that have been held for one year or less, and Section 1231 property, to the extent a sale would result in the recognition of ordinary income due to depreciation recapture
Donation of inventory by corporation
valued as adjusted basis except:
FMV-50%ordinary income if FMV were sold at its FMV (limited to twice the basis):
- inventory to be used solely for the care of the ill, those in need, or infants
-Donation of scientific equipment constructed by the taxpayer and donated to a qualified research organization, to be used for research in the physical or biological sciences
Contributions of computer technology and equipment donated to public libraries and schools
Corporate charitable deductions are limited to _____ of the corporation’s taxable income for the year
25%
Identify the amount of the permitted contribution on capital gain property that is tangible personal property and is donated to a public charity for an unrelated use.
The lesser of the FMV or adjusted basis
Tammi’s AGI is $90,000 and she donates $35,000 to her church and $25,000 to a private nonoperating charity.
Calculate the permitted amount of deduction for the contribution to the private nonoperating charity.
Tammi’s deduction for the contribution to the private nonoperating charity (a 30% charity) is limited to $19,000 (The lesser of these three amounts):
Description
Amount in Dollars
The actual contribution
$25,000
The remaining 60% limitation after the contribution to Tammi’s church [(0.60 × $90,000) - $35,000]
$19,000
30% of AGI (0.30 x $70,000)
$27,000
Identify the public charities
Churches or conventions and associations of churches
Educational institutions that normally maintain a regular faculty, curriculum and regularly enrolled students
Organizations such as hospitals and medical schools, whose principal function is medical care or medical education and research
Government-supported organizations that exist to receive, hold, invest and administer property for the benefit of a college or university
Any qualified governmental unit
Organizations that normally receive a substantial part of their support from either a governmental unit or the general public
Certain private operating foundations
A _____________________ is a charitable gifting vehicle that allows money to be set aside for charity and provides a variable payment each year.
A Pooled Income Fund (PIF) is a charitable gifting vehicle that allows money to be set aside for charity. The grantor receives a variable payment each year. It avoids capital gains taxes on appreciated securities and allows the donor to take a partial tax deduction and generate lifetime income for as many as two beneficiaries.
During the current year, Barry purchases land as an investment for $70,000. Ten months later he contributes the land to the St. Jude’s Hospital. At the time of the contribution, the property’s FMV is $85,000.
Calculate the amount of Barry’s contribution.
The amount of Barry’s contribution is $70,000 ($85,000 - [$85,000 - $70,000]) because he held the land for less than one year.
Sharif is a CFP® professional and he has donated his financial expertise to an all-day seminar on Social Security for AARP. The seminar was held in the atrium of a public library several counties away from Sharif’s home. He traveled 78 miles each way and paid $75 in gas & $15 in tolls.
Calculate the deduction available to Sharif for the costs of traveling to and from the event if he uses the standard mileage rate method.
Instead of the actual costs of operating an automobile while performing the donated services, the law permits a deduction of $0.14 cents per mile. If he opted to use the mileage deduction, only qualifying expenses to Sharif are the mileage to and from the event, plus tolls. He traveled 78 miles each way (156 miles total) at a rate of $0.14 per mile. 156 miles x $0.14 = $21.84, $22 rounded.
Sharif can deduct parking fees and tolls whether he uses the actual expenses or the standard mileage rate.
Tolls were $15 + $22 in charitable mileage rate deduction = $37.
- Note that a larger deduction of $90 was available to Sharif if he had elected to use the actual expenses! (i.e., $75 in gas + $15 in tolls).
Simone donated an antique lamp to an art gallery with a fair market value of $325. Which of the following is required in order for Simone to claim a charitable contribution deduction on her tax returns this year?
For a contribution to a charity valued from $250 to $500, the only recordkeeping requirement is a donor letter. At $325, Simone’s contribution falls within that range.
On September 15th, 2022, Tucker purchased a speedboat for $95,000. On October 1st, 2023, he gifted the speed boat to his cousin Pierre. At the time of the gift, the speedboat was valued at $150,000. After utilizing the annual exclusion amount, Tucker paid $4,250 in gift taxes.
Select Pierre’s basis in the speedboat.
To calculate the adjusted basis to the donee, first calculate the gift tax adjustment:
Step 1: Calculate the ‘Appreciation Factor’ [(FMV – Basis) ÷ (FMV – Annual Exclusion)]
[{$150,000 - $95,000) ÷ ($150,000 - $17,000)] = [$55,000 ÷ $133,000] = 0.4135
Step 2: Multiply the ‘Appreciation Factor’ by the Gift Tax Paid
0.4135 x $4,250 = $1,758
Next, add the gift tax adjustment to the original basis to find the adjusted basis.
$1,758 + $95,000 = $96,758
More info: Gifted Property with Gains + Gift Tax Adjustment.
When a charitable contribution of tangible, use-unrelated property is made to a qualifying public charity and the FMV of the asset is lower than its basis, the maximum charitable contribution is _____ of the taxpayer’s AGI.
When a charitable contribution of tangible, use-unrelated property is made to a qualifying public charity and the FMV of the asset is lower than its basis, the maximum charitable contribution is 30% of the taxpayer’s AGI.
