Charitable/Philanthropic Contributions and Deductions

Question 1

Charitable Contrbutions

Answer 1

-are itemized deductions on Schedule A that will reduce taxable income for clients whos total itemized deductions exceed the standard deduction.

Question 2

Tax-Exempt Entities

Answer 2

• only gifts to tax exempt organizations are deductible
• IRS publishes a list that includes those organizations which have qualified under section 501 of the IRC for tax-exempt status and which can receive deductible contributions.

Question 3

Public Charities

Answer 3

-churches, educational organizations, hospitals, governmental entities, and other organizations which are organized exclusively for charitable purposes and receive substantial support from the public.

Question 4

Private Charities

Answer 4

-veterans organizations, fraternal orders, and certain private foundations where support does not come from the public, but from a small group of individuals.

Question 5

Donor-Advised Funds

Answer 5

• contributions made to a DAF are deductible in the year they are made.
• provides the taxpayer with the up-front charitable deduction and the ability to spread out charitable gifts over a period of years.

Question 6

Deduction Limits

Answer 6

• the deduction of cash to public charities is limited to 50% of AGI.
• cash to private charities, the limit is the lesser of 30% of AGI or the difference between 50% of AGI and donations to public charities

Question 7

Carryover Periods

Answer 7

-any charitable contribution that is disallowed because of the limitation with respect to AGI is carried forward for up to five years and may be deducted on future returns.

Question 8

Appreciated Property

Answer 8

• the deduction for gifts of property is generally the FMV of the property on the date of the donation.
• applies to gifts of appreciated capital gain property if it is intangible, such as shares of stock.
• the deduction for gifts of tangible personal property is the donor’s basis, if it is not used in the donee’s charitable purpose, or the FMV, if it is used in the charitable purpose
• gifts of ordinary income property such as inventory, copyrighted work in the hands of the creator, and capital gain property held less than one year provide a deduction of only the donor’s basis.

Question 9

30% and 20% Limits

Answer 9

• the deduction for gifts of long-term appreciated property is limited to 20% of AGI for gifts to private charities and 30% of AGI to public charities.
• the deduction limit can be increased by 50% of AGI if the amount of the gift is valued at the donor’s cost basis rather than at FMV.

Question 10

Donations of Tangible Personal Property

Answer 10

• the tax deduction limitation will depend upon whether the property is “use-related” or is not use-related.
• use-related deduction is the same as other appreciated property (a choice between FMV (30% of AGI) or Basis (50% of AGI)) to a public charity. For a donation to a private charity the deduction is limited to 20% of AGI.
• non-use related deductibility is the lesser of FMV or basis and then a maximum of 50% of AGI to a public charity and 20% to a private charity.

Question 11

Partial-Interest Gifts to Charity

Answer 11

• property held in a charitable lead trust or charitable remainder trust are able to be deducted.
• a donor may deduct a remainder interest in a residence or farm and a donor may deduct a gift of a partial interest in other property if that is the donor’s entire interest.
• naming a charity as the beneficiary of a life insurance policy will generally be sufficient to allow the policy owner to deduct the premium payment.

Question 12

Direct Contributions from IRA’s

Answer 12

• available for taxpayers over the age of 70 1/2
• Allows the taxpayer to make a distribution straight from their IRA to a qualified charity. They are not able to claim the deduction, however the do not have to report the income from the distribution on their form 1040.
• the distribution does count toward their RMD.

Question 13

Nondeductable Contributions

Answer 13

• no deduction is allowed for contribution of time or for donations for use of property.
• no charitable deduction is allowed for transfer to a charity of a split-dollar life insurance policy if the charity directly or indirectly pays the premiums
• no deduction for donation to a foreign charity.

Question 14

Appraisals

Answer 14

• when gifts of property are claimed as deductions in excess of $5,000 and are not publicly traded stock or cash, a donor must obtain a qualified appraisal for each item donated and must include a copy of the appraisal in their return.
• if the donation is of non publicly traded securities, an appraisal is not needed until the donation exceeds $10,000.

Question 15

Substantiation Requirements

Answer 15

• for gifts of cash under $250, a cancelled check will satisfy the substantiation requirements.
• For all gifts over $250, a written acknowledgment from the charity is necessary to substantiate the contribution.
• if a vehicle worth more than $500 is donated, the charity must report the gross proceeds on the sale of the vehicle to the taxpayer and this is the amount that the taxpayer will be able to deduct. Does not apply if the charity uses the car or gives it so someone of need.

Question 16

Charitable Contributions by Business Entities

Answer 16

• C corps may deduct up to 10% of taxable income after adding back any deduction for NOL or capital loss carrybacks or any dividends received or carryforwards.
• excess contributions may be carried forward for 5 years