Section 7: Charitable Giving Flashcards
Public Charity Deduction limits
Cash 60%
OI Property 60% (lesser of fmv or basis)
LTCG 30% fmv
tangible (related) 30% fmv
tangible (unrelated) 60% fmv
Maximum SALT deduction
state and local taxes $10k maximum
Life Insurance Income tax deduction
if a charity is the irrevocable bene you could qualify for a charitable deduction and provide leverage- confirm w/ CPA
estate tax deduction limits for charity
unlimited
5013c
IRS definition of a charity- IRC designation- must have a charitable letter from IRS to prove
ordinary income property
charitable deduction limited to adjusted basis
i.e. cant get deduction for s-t growth
life insurance policy valuation
if requested- insurance company can provide free of charge:
- Interpolated terminal value plus unearned premium
- The replacement cost of the policy on form712
Private operating foundation
“operating foundation”- active charitable activities- not just giving money away
e.g. museum, library, etc
More liberal from a tax standpoint- up to 50% ago for cash contributions and 30% agi fmv for ltcg property
Private Foundations
they don’t solicit for donations- referred to as non-operating foundation
cash contributions deductible up to 30% agi
LTCG limited to 20% agi
CLT
charitable lead trust
can be structured as charitable lead “annuity trust” or “unitrust”
residual can come back to the grantor or estate- get deduction equal to pg of future income payments to charity
CRUT
charitable remainder unitrust
variable payout based on annual valuation date
- standard crut- fixed %
- net income- pays lesser of fixed % or actual income
- Net income makeup unitrust (nim-crut) can make up income to extent less then fixed %
- Flip Crut- payout lesser of income or fixed during initial period then fixed % remains
CRAT
charitable remainder annuity trust
fixed payment at least 5%, no more then 50% of initial fmv- term less than or equal to 20 years, value of remainder interest must be at least 10% of initial fmv- usually optimized close as possible to 10%- once calculated can’t add more
Pooled Income fund
a trust maintained by the charity- receive donations analogous to a mutual fund- donations are co-mingled
QCDs
qualified charitable distributions
up to $100k from pretax to charity- no agi limit
counts towards rmd
could lower taxes on s/s and medicare premiums since they are agi related
Private Charitable income tax donations
cash 30% agi
OI. 30%agi limited to basis
LTCG 20%
Tangible related 30%
Tangible unrelated 30%
Life insurance Basis or replacement up to 30%
*% of agi
qualify as public charity
receive at least 1/3 of support from general public and maybe medical research facilities associated with hospitals
charitable remainders
donor can gift personal residence or farm to charity and continue to live there for the rest of their life and get deduction for pg of the remainder interest
NIMCRUT
net income makeup charitable remainder unitrust
if income produced is inadequate to meet the unitrust payout amount, trust has a makeup provision, bene can recieve lesser of % of trust’s assets or actual trust income plus any express income from the past years, typically funded with low income producing assets in early years then trustee later converts to higher income after bene retires
CRUT overview
charitable remainder unitrust
income goes to non-charitable bene, pays fixed percentage of net fmv or principle revalued annually, income based on performance, can be inflation hedge, additional assets can be added
CRAT overview
charitable remainder annuity trust
once funded, no assets can be added, only thing that can be changed is the ultimate charity bene, if income does not meet the fixed amount, can take from principle, can exhaust principle
Private foundations overview
limited deductions of 30% for cash and 20% for ltcg property (of agi)
very expensive to operate
5% required distributions per year to charity
file income tax return
not have any unreleased business transaction income
family members and others who manage can be paid for this work
split-interest charitable transfers
generally not permitted except for w/ remainder/lead trusts and pooled income funds, e.g. transfer is for current income or remainder but not both
private foundations are structured as…
not-for-profit corporation or tax exempt trust
typically formed by one family as opposed to sourcing funds from multiple sources
IRS published list of charities
IRS publication 78
If not listed, it is wise to request a determination letter from the IRS for the charity
charitable transfer
gratuitous transfer of property to charitable, religious, scientific, educational, or other specified organizations
CRUT with life insurance
low basis assets are donated to CRUT- CRUT pays income for both spouses lives- life insurance is purchased w/ part of annual income- get current tax deduction
flip crut
NIMCRUT OR NICRUT and a standard CRUT are combined- can flip from NIMCRUT or NICRUT to regular CRUT based on event not controlled by the trustee or donor
e.g. sale of illiquid assets, birthday, death of spouse
Funding a CRUT
often funded with appreciated securities, eliminate cap gains taxes
may provide higher income stream
remainder interest must equal 10% of fmv of assets transferred to trust
CRT Taxation
Can last up to 20 years or life of bene
each payment to bene treated as
1. OI to the extent trust has it in current year and then undistributed OI from prior years
2. CG current year and then undistributed CG from prior years
3. Other income current year, then prior years
4. tax free distribution
5% must pay annually, 10% must remain- young donor is not suitable
UBTI - private foundation
when tax exempt organization generates revenue not substantially related it taxes the income- this way it does not create an unfair advantage w/ taxable entities
also common securities can cause ubti if borrowed funds are used to purchase
if partnership is held and it uses borrowed funds, then UBTI is created for foundation
990-PF
private foundation tax filling form- it is publicly available- private foundation is not so private
How to simplify charitable estate plan
use DAF- can use combo of successors and charities at death- avoids atty costs
Limitation of LTCG property given to a private foundation
Long-term capital gain property donated to a private foundation is deductible up to 20% of AGI.
tax payer donates qualified appreciated stock stock to a private foundation- what is the shares limitation?
The stock cannot be more than 10% of the corporation’s shares
CRUT/CRAT beneficiary payments limitations
CRAT & CRUT can make payments to the beneficiary for up to 20 years or the life of the beneficiary.
Your client is 55 years old, is planning on retiring in 2 years and will have an AGI of $500,000 until he retires. He believes his AGI in his first year of retirement will be $100,000. The client would like to make charitable gifts totaling $200,000 this year and 100,000 in each of the next two years to a qualified public charity. A list of potential gifts are: 1. $175,000 cash 2. $200,000 stock with a $10,000 short-term capital gain 3. $600,000 stock purchased 10 years ago with a long-term capital gain of $500,000 In order to maximize his income tax deductions, which asset(s) should he gift in the first year?
Because of his AGI, the client should contribute short term capital gain property in year one. In year two, the client can contribute either short-term capital gain property or long-term capital gain property and still deduct the gifts in full. In year three, the client should distribute short-term capital gain property or cash in order to ma
Deduction Limitations Public Charities
Deduction limitations on private charities
