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)