Charitable Giving

Question 1

What is the primary difference between public and private charities?

Answer 1

Public charities rely on a broad base of public support, while private charities (foundations) typically receive funding from a single source, impacting tax deduction limits and restrictions on self-dealing.

Question 2

What is the tax deduction limit for cash donations to public charities?

Answer 2

Cash donations to public charities are deductible up to 60% of the donor’s adjusted gross income (AGI).

Question 3

What is a donor-advised fund (DAF), and how does it work?

Answer 3

A DAF is a fund held within a public charity where donors can make irrevocable contributions, receive immediate tax deductions, and recommend grants over time.

Question 4

What are the benefits of donating appreciated stock to a donor-advised fund?

Answer 4

Donors can avoid capital gains tax, receive a tax deduction for the fair market value, and support charities without immediate distribution requirements.

Question 5

Describe the two main types of Charitable Lead Trusts (CLTs).

Answer 5

CLTs include Charitable Lead Annuity Trusts (CLATs), which pay a fixed amount to charity, and Charitable Lead Unitrusts (CLUTs), which pay a percentage of trust assets annually.

Question 6

What is a Charitable Remainder Trust (CRT)?

Answer 6

A CRT provides income to non-charitable beneficiaries for a term or lifetime, with the remaining assets going to charity, offering tax benefits for income and estate planning.

Question 7

What is the tax impact of unrelated business taxable income (UBTI) for private foundations?

Answer 7

UBTI is subject to corporate tax rates for exempt organizations if derived from unrelated business activities.

Question 8

What tax benefits do Qualified Charitable Distributions (QCDs) offer from IRAs?

Answer 8

Individuals over 70½ can exclude up to $100,000 from gross income if paid directly from an IRA to a charity, satisfying required minimum distributions without tax impact.

Question 9

How is the deduction for long-term appreciated property handled when donated to a public charity?

Answer 9

Donors may deduct the full fair market value of the asset, up to 30% of AGI, with a 5-year carry-forward for any excess.

Question 10

What happens to contributions of tangible personal property if the charity does not use the gift for related purposes?

Answer 10

The deduction is limited to the donor’s cost basis, rather than fair market value.

Question 11

Explain the requirements for a qualified charitable distribution (QCD) from an IRA.

Answer 11

QCDs must go directly to the charity and be made by individuals over 70½, providing a tax-exempt withdrawal that counts toward RMDs.

Question 12

How are gifts to foreign charities treated for tax purposes?

Answer 12

U.S. tax law does not typically allow deductions for gifts to foreign charities unless specified by treaty.

Question 13

Describe a conservation easement and its tax benefits.

Answer 13

A conservation easement is a charitable donation of land use rights, allowing income, estate, and gift tax deductions for preserving land.

Question 14

What is a Private Operating Foundation (POF)?

Answer 14

A POF directly supports charitable activities, qualifying for higher AGI deduction limits similar to public charities.

Question 15

What are the carry-forward rules for charitable deductions exceeding AGI limits?

Answer 15

Excess deductions can be carried forward for five years.

Question 16

What is the primary tax benefit of a charitable lead trust (CLT)?

Answer 16

A CLT provides an income tax deduction for the present value of the income interest going to charity, often reducing estate and gift tax.

Question 17

How are charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs) different?

Answer 17

A CRAT pays a fixed annuity to beneficiaries, while a CRUT pays a percentage of trust assets, which is recalculated annually.

Question 18

What is the maximum payout percentage for a Charitable Remainder Trust (CRT)?

Answer 18

The CRT payout percentage must be between 5% and 50% of the trust’s assets.

Question 19

Explain the term ‘split-interest’ trust.

Answer 19

A split-interest trust provides benefits to both charitable and non-charitable beneficiaries, such as CLTs and CRTs.

Question 20

What is the function of Form 8283 in charitable donations?

Answer 20

Form 8283 is used to report noncash charitable contributions over $500 and requires an appraisal for contributions over $5,000.

Question 21

What is a donor-managed investment account, and how does it differ from a DAF?

Answer 21

A donor-managed investment account allows the donor to manage investments while the charity retains control, unlike DAFs where the donor only makes advisory recommendations.

Question 22

Describe the tax deduction limitations for donating short-term capital gain property.

Answer 22

Deductions for short-term capital gain property are limited to the donor’s cost basis rather than fair market value.

Question 23

What is the unrelated debt-financed income rule for charitable organizations?

Answer 23

Income from debt-financed property is subject to UBTI unless the property is substantially used for charitable purposes.

Question 24

How is the tax deduction for gifts of cash to a private foundation limited?

Answer 24

Cash gifts to private foundations are deductible up to 30% of AGI.

Question 25

Explain the concept of ‘step-up in basis’ and its relevance to charitable giving.

Answer 25

When appreciated property is donated, the donor may avoid capital gains tax and deduct the stepped-up fair market value, benefiting both donor and charity.

Question 26

How does a charitable lead annuity trust (CLAT) differ from a charitable lead unitrust (CLUT)?

Answer 26

A CLAT pays a fixed amount to charity, while a CLUT pays a variable amount based on a percentage of the annual trust value.

Question 27

What are some advantages of donor-advised funds over private foundations?

Answer 27

DAFs provide immediate tax deductions, flexible grant timing, lower setup costs, and avoid annual distribution requirements.

Question 28

Define private inurement and its prohibition in charitable organizations.

Answer 28

Private inurement involves personal benefit from a charity’s income or assets, which is strictly prohibited in tax-exempt organizations.

Question 29

What is the tax impact of selling appreciated assets within a CRT?

Answer 29

CRTs do not incur capital gains tax upon sale, benefiting from tax-free growth within the trust.

Question 30

Describe the charitable deduction rules for donating art and collectibles.

Answer 30

Deductions for art and collectibles are based on fair market value if used for a related purpose; otherwise, they are limited to the donor’s basis.

Question 31

What are the substantiation requirements for charitable deductions over $250?

Answer 31

Donors must obtain a written acknowledgment from the charity detailing the amount and description of the gift and any goods/services received in return.

Question 32

What is the annual distribution requirement for private foundations?

Answer 32

Private foundations must distribute at least 5% of their net assets annually to avoid excise taxes.

Question 33

Explain the estate tax implications of a Qualified Conservation Easement.

Answer 33

Qualified conservation easements reduce estate value and can qualify for exclusions, lowering estate tax liability.

Question 34

What are the tax advantages of a charitable remainder unitrust (CRUT) for appreciated assets?

Answer 34

CRUTs allow tax-free diversification by selling appreciated assets without capital gains tax, while providing income to the donor.

Question 35

How do DAFs handle donations of complex assets?

Answer 35

Many DAFs can accept complex assets like real estate or private stock, providing flexibility and tax benefits unavailable to some charities.

Question 36

What is the ‘five-year carry-forward’ rule in charitable deductions?

Answer 36

Any charitable deduction amount that exceeds AGI limits can be carried forward and deducted over the next five years.

Question 37

What are the income and gift tax deductions for CRTs?

Answer 37

CRT donors receive a deduction for the present value of the remainder interest, qualifying for income, gift, and estate tax deductions.

Question 38

Describe how unrelated business taxable income (UBTI) affects charities.

Answer 38

UBTI can subject a charity to tax if it derives income from unrelated business activities, reported on Form 990-T.

Question 39

What are the tax implications of funding a donor-advised fund with appreciated securities?

Answer 39

Donors can avoid capital gains tax and deduct the full fair market value, maximizing the tax benefits of their contribution.

Question 40

What is the charitable deduction limit for gifts of appreciated property to a private foundation?

Answer 40

Gifts of appreciated property to private foundations are generally limited to the donor’s cost basis for deduction purposes.