Let’s say you are LeBron James. And you/Lebron, volunteer often for your favorite charity. Can you deduct the value of your services?

No, not even a superstar athlete can deduct the value of his services. The IRS does not allow a charitable deduction for volunteering your time. However, out of pocket expenses relating to volunteering are deductible.

Out-of-pocket expenses are deductible if the expenses are:

  1. unreimbursed;
  2. directly connected with the services;
  3. expenses you had only because of the services you gave; and
  4. not personal, living, or family expenses

Examples of out of pocket charitable expenses which may be deductible include the cost of transportation (including parking fees) and supplies used in the performance of your services.

As with other donations, keep good records. Documentation is key.

Famous Irish writer Oscar Wilde said, “I have the simplest tastes. I am always satisfied with the best.” Here are a few of my best ideas about stretching your charitable dollar.

Why not give now, rather than later?

Let me tell you about my imaginary friend, Aideen O’Murphy. Aideen intends to donate to charity eventually, at death through her will and estate plan. But why not give now? Aideen can have more say about use of gifts while she’s alive, and also feel the joy that comes with helping worthy causes. There are also positive tax benefits for Aideen to give now rather than later.

Faith and begorrah: double federal tax benefit

Gifts of long-term capital assets, such as stock, real estate, and farmland [where leprechauns may live!], can receive a double federal tax benefit. First, Aideen can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock, real estate, or farmland.

Second, assuming Aideen owned the asset for more than one year at the time the asset is donated, Aideen can avoid long-term capital gain taxes which would have been owed if the asset was sold.

Let’s look at a concrete example to make this clearer. Aideen owns shares of stock in Shamrock, Inc. [let’s pretend it’s a publicly traded U.S. stock] with a fair market value of $10,000. She wants her stock to help her favorite causes. Which would be better for Aideen – to sell the stock and donate the cash, or give the stock directly to her favorite charities? Assume the stock was originally purchased at $2,000 (basis), Aideen’s income tax rate is 39.6%, and her capital gains tax rate is 20%.

Donating cash versus donating long-term capital gain assets  Donating cash proceeds after sale of stock Donating stock
Value of gift $10,000 $10,000
Federal income tax charitable deduction ($3,960) ($3,960)
Federal capital gains tax savings $0 ($1,600)
Out-of-pocket cost of gift $6,040 $4,440

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Again, a gift of long-term capital assets, such as stocks, real estate, or farmland, made during lifetime, can be doubly beneficial. Aideen can receive a federal income tax charitable deduction equal to the fair market value of the asset. Aideen can also avoid capital gains tax.

In Iowa, however, there is even more potential tax benefit. Aideen can also receive a 25% state tax credit for gifts made during lifetime, lowering the after tax cost of charitable gifts even further.

Saints preserve us: 25% Iowa tax credit

Under the Endow Iowa Tax Credit program, gifts made during lifetime can be eligible for a 25% tax credit. There are three basic requirements to qualify.

First, the gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).

Second, the gift must be made to an Iowa charity. For example, to receive Endow Iowa tax credits, Aideen couldn’t give directly to National Public Radio, but she could give to Iowa Public Radio.

Third, the gift must be endowed – that is, a permanent gift. Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your community foundation. Clearly, this final requirement is a major restriction. Still, in exchange for a 25% state tax credit, it must be seriously considered by Aideen and other Iowa donors.

If Aideen makes an Endow Iowa qualifying gift, the tax savings are very dramatic. There are potentially huge tax benefits for donating long-term capital gain assets, such as stocks, real estate, and farmland, while claiming the Endow Iowa Tax Credit:

Value of gift $10,000
Federal income tax charitable deduction ($3,960)
Federal capital gains tax savings ($1,600)
Endow Iowa Tax Credit ($2,500)
Out-of-pocket cost of gift $1,940

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Note well Aideen’s significant tax savings. In this scenario, by giving stock during lifetime, Aideen receives $3,960 as a federal charitable deduction, avoids $1,600 of capital gains taxes, and gains a state tax credit for $2,500, for a total tax savings of $8,600. Put another way, Aideen made a gift of $10,000 to her favorite charity, but the out of pocket cost of the gift to her was less than $2,000.

This is a great deal for Aideen and a great deal for Aideen’s favorite causes. But could anything go wrong with this scenario? There are four areas of caution.

 Cautionary Notes

The federal income tax charitable deduction is capped. Generally, the federal charitable deduction for gifts of stock, real estate, and farmland is limited to 30% of adjusted gross income. A taxpayer may, however, carry forward any unused deduction amount an additional five years.

Additionally, records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for certain gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. You need to engage the right professionals to be sure all requirements are met.

Endow Iowa Tax Credits are also capped – both statewide and per individual. Iowa sets aside a pool of money for Endow Iowa Tax Credits, and it’s available on a first-come, first-served basis. In 2014, approximately $6 million in tax credits was available annually through Endow Iowa. So encourage clients to submit applications now, as tax credits often run out towards year end. Endow Iowa also has a cap per individual. Tax credits of 25 percent of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million, or $600,000 in tax credits per couple for a gift of $2.4 million.

Finally, all individuals, families, businesses, and farms are unique and have unique tax issues. This article is presented for informational purposes only, not as tax advice or legal advice. Consult a professional for personal advice.

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

Please consider Gordon’s request for you to sign up for his free e-newsletter and encourage others to do the same. A quick and easy sign-up is here. Also, please forward the subscription page to any person or group you think might be interested.

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#Ireland

#Irish

#clover

#leprechaun

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A charitable donation is deductible to the extent the donation exceeds the value of any goods or services received in exchange. So what happens when you donate to your favorite charity and receive something tangible in return? This is the issue of “quid pro quo” in charitable gift law.

Quid pro quo (“something for something” in Latin) means an exchange of goods or services, where one transfer is contingent upon the other.

You may deduct the cost of your donation less the value of the goods/services received. If you’re not sure of the value of an item or service received after a donation, be sure to ask. Charitable organizations should provide you clear documentation of the value of your donation.

A quick and easy example, which may be timely too.* If a donor gives a charity $100 and receives a Wagner opera ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60. The donor is entitled to a charitable deduction not for $100, but for $60.

*Today is May 22, birthday of famous composer Wilhelm Richard Wagner, b. 1813

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

Please consider Gordon’s request for you to sign up for his free e-newsletter and encourage others to do the same. A quick and easy sign-up is here. Also, please forward the subscription page to any person or group you think might be interested.

​Also, be social with Gordon. Please “like” Gordon Fischer Law Firm’s Facebook page, follow Gordon on Twitter, and connect with Gordon on LinkedIn and Google+. Links:

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TAX CONSEQUENCES OF THE GIFT OF YOUR HORSE TO CHARITY

Introduction

Today the Preakness is being run, so what about a gift horse? You could sell your horse and donate the proceeds; then we’re talking about a cash gift. But if you’ve owned the horse more than two years, the horse could be treated as a long-term capital asset. [Generally speaking, you only have to own property for more than one year to claim long term capital gain status, but horses must be owned for more than two years.]

Basic requirement

To receive a deduction, make certain the organization you choose to receive your horse is certified by the IRS as a charitable organization. You can check out the organization with a search on the IRS website here.

The concept of “related use”

Has the value of your horse increased or decreased since you purchased the horse? If the value has decreased, then the use of the horse by the nonprofit to which you donated the horse does not matter, most probably. If the value of your horse has increased, however, the doctrine of “related use” kicks in.

If appreciated property is considered related to the nonprofit’s exempt purpose, the deduction is based on fair market value and available to the extent of 30% of the donor’s adjusted gross income. If property is considered unrelated to the public charity’s exempt purpose, the deduction is based on the lesser of fair market value and cost basis, and is available to the extent of 50% of donor’s adjusted gross income.

So, for example, if you donate your horse to a youth homeless shelter, so the youth can care for  the horses, my best guess would be that you can’t deduct the FMV, as the shelter’s charitable purpose does not really relate to or with horses. Donating the horse to a therapeutic horse riding center, however, should allow FMV deduction since horses are obviously used to fulfill the nonprofit’s major charitable purpose.

Valuation requirements

Donation of a horse, like any donation, requires substantiation if you want to claim a federal income charitable deduction. Here’s a simple explanation of IRS record keeping rules for the charitable deduction:

Gifts of less than $250 per donee — you need a cancelled check or receipt

$250 or more per donee — you need a timely written acknowledgement from the donee

Total deductions for all property exceeds $500 — you need to file IRS Form 8283

Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

I provide details on substantiation requirements in a blog post here.

Conclusion

A gift of a horse of course could provide helpful tax benefits. But proceed with due care, as there are some tricky rules.

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

Please consider Gordon’s request for you to sign up for his free e-newsletter and encourage others to do the same. A quick and easy sign-up is here. Also, please forward the subscription page to any person or group you think might be interested.

​Also, be social with Gordon. Please “like” Gordon Fischer Law Firm’s Facebook page, follow Gordon on Twitter, and connect with Gordon on LinkedIn and Google+. Links:

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####

 

I love National Public Radio and Iowa Public Radio.

Wait, let me amend that:  I LOVE NPR and IPR!

NPR and IPR provide the soundtrack to our lives. I’m a constant listener, Monica even more so.

On this date in 1971 — May 3 — the afternoon drive-time newscast All Things Considered first aired.

So this seems a good day to help NPR and IPR raise more money.

There are six easy ways NPR and IPR could raise more money. All six ways could be implemented with little or no cost, and not even that much time.

Reader, please take note: these helpful hints apply to any nonprofit. Almost any nonprofit could use these tips to raise more money and grow.

 

Tip one: NPR and IPR should urge listeners to consider all their assets for potential gifts.

To give smart, donors and potential donors need to consider all their assets. Don’t consider cash, and cash only, but look at your entire basket.

Allow me to illustrate with three real-world examples.

A farmer generally doesn’t have a lot of cash on hand – we’ve all heard the phrase, “land rich, cash poor.” But farmland itself can be a very tax-savvy gift, and so can gifts of grain.

A young person who is self-employed doesn’t have a lot of cash on hand. But this young person inherited an IRA from a relative, and must make annual required minimum distributions [RMDs].

IRA RMDs can be a tax-wise gift.

A married couple, recently retired, own three life insurance policies. This made lots of sense when their kids were younger, but now their kids are all grown up and successful on their own.

It may be that a paid up life insurance policy could be signed over to their favorite charity.

NPR and IPR should let their donors know everyone’s individual facts and circumstances are unique. Donors should consider seeking personalized counsel to look at their whole basket of assets.

 

Tip two: NPR and IPR should educate listeners about the value of the federal income tax charitable deduction.

For a discussion of tax brackets, see my post called bracketology. In short, as of May 2015, there are seven federal income tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

The charitable deduction can result in significant tax savings.

For example, assume a donor in the 33% tax bracket gives to her favorite qualified charitable organization a donation of $100.

The charity still receives the full gift of $100. But, for the donor, the actual out-of-pocket cost of the gift is only $67, and the donor saves $33.

Let’s make these assumptions for all tax brackets and see the savings which result:

Bracket              Donation                        Savings                                 Cost
10%                     $100                               $10                                      $90

15%                     $100                               $15                                      $85

25%                     $100                               $25                                      $75

28%                     $100                               $28                                      $72

33%                     $100                               $33                                      $67

35%                     $100                               $35                                      $65

39.6%                  $100                              $39.60                                $60.40

 

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

 

As can be seen, significant tax savings can result. The charitable deduction is valuable.

 

Tip three: NPR and IPR should broadcast the record keeping requirements for the charitable deduction.

The charitable deduction requires you to be organized in your giving and maintain records. Generally speaking, the greater the deduction, the more detailed the records you are required to keep.

For example, to receive a charitable deduction for gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser.” These two terms have very specific meanings to the IRS.

NPR and IPR should let people know about these requirements. And let folks know they need to engage the right professionals to be sure all requirements are met.

 

Tip four: NPR and IPR should urge listeners to consider gifts of long term capital gains property [like stocks].

Gifts of long-term capital assets, such as publicly traded stock and real estate, may receive a double federal tax benefit.

First, donors can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock or real estate.

Second, assuming the donor owned the asset for more than one year, when the asset is donated, the donor can avoid long-term capital gain taxes which would have been owed if the asset was sold.

Let’s look at a concrete example to make this clearer. Pat owns stock with a fair market value of $1,000. She wants to use the stock to help her favorite causes, which include NPR and IPR.

Which would be better for Pat – to sell the stock and donate the cash, or gift the stock directly to public radio?

Assume the stock was originally purchased at $200 (basis), Pat’s income tax rate is 39.6%, and her capital gains tax rate is 20%.

 

Donate cash proceeds after sale                                                Donate stock

Value of gift                                           $1,000                                      $1,000

Federal charitable deduction               ($396)                                        ($396)

Federal capital gains tax savings         $0                                               ($160)

Out-of-pocket cost of gift                      $604                                         $444

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

 

 

Again, a gift of long-term capital assets, such as stocks or real estate, made during lifetime, can be doubly beneficial.

The donor can receive a federal income tax charitable deduction equal to the fair market value of the asset. The donor can also avoid capital gains tax.

 

Tip five: NPR and IPR should ask listeners to consider the Endow Iowa Tax Credit program.

In Iowa, there is even more potential tax benefit. Donors can receive a 25% state tax credit for gifts made during lifetime, lowering the after tax cost of charitable gifts even further.

Under the Endow Iowa Tax Credit program, gifts made during lifetime can be eligible for a 25% tax credit. There are three requirements to qualify.

First, the gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).

Second, the gift must be made to an Iowa charity.

Third, the gift must be endowed – that is, a permanent gift.

Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your local community foundation.

Clearly, this final requirement is a major restriction. Still, in exchange for a 25% state tax credit, it must be seriously considered by Iowa donors.

 

Tip six: NPR and IPR should engage listeners to combine all these tips!

Let’s look again at the case of Pat, who is donating stock per the table above. If Pat makes an Endow Iowa qualifying gift, the tax savings are very dramatic:

 

Tax benefits of a donation of long-term capital gain asset with Endow Iowa Tax Credit

Value of gift                                          $1,000

Federal charitable deduction                ($396)

Federal capital gains tax savings          ($160)

Endow Iowa Tax Credit                          ($250)

Out of pocket cost of gift                     $194

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

 

Note well Pat’s significant tax savings.

In this scenario, Pat receives $396 as a federal charitable deduction, avoids $160 of capital gains taxes, and gains a state tax credit for $250, for a total tax savings of $806.

Put another way, Pat made a gift of $1,000 to her favorite charity, but the out of pocket cost of the gift to her was less than $200.

Of course, all Iowans are unique and have unique legal and tax challenges. Consult your own professional advisor for personal advice.

Introduction

You could sell your horse and donate the proceeds; then we’re talking about a cash gift. But if you’ve owned the horse more than two years, the horse could be treated as a long-term capital asset. [Generally speaking, you only have to own property for more than one year to claim long term capital gain status, but horses must be owned for two years.]

Basic requirement

To receive a deduction, make certain the organization you choose to receive your horse is certified by the IRS as a charitable organization. You can check out the organization with a search on the IRS website here.

The concept of “related use”

Has the value of your horse increased or decreased since you purchased the horse? If the value has decreased, then the use of the horse by the nonprofit to which you donated the horse does not matter. If the value of your horse has increased, however, the concept of “related use” kicks in.

If appreciated property is considered related to the nonprofit’s exempt purpose, the deduction is based on fair market value and available to the extent of 30% of the donor’s adjusted gross income. If property is considered unrelated to the public charity’s exempt purpose, the deduction is based on the lesser of fair market value and cost basis, and is available to the extent of 50% of donor’s adjusted gross income.

So, for example, if you donate your horse to a youth homeless shelter, so the youth can care for  the horses, my best guess would be that you can’t deduct the full value, as the shelter’s charitable purpose does not really have anything to do with horses. Donating to a therapeutic horse riding center I believe would allow full deduction since horses are obviously used to fulfill the nonprofit’s major charitable purpose.

Valuation requirements

Here’s a simple explanation of IRS record keeping rules for the charitable deduction:

Gifts of less than $250 per donee — you need a cancelled check or receipt

$250 or more per donee — you need a timely written acknowledgement from the donee

Total deductions for all property exceeds $500 — you need to file IRS Form 8283

Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

I provide details on substantiation requirements in a blog post here.

Conclusion

A gift of a horse of course could provide helpful tax benefits. But proceed with due care.

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

Please consider Gordon’s request for you to sign up for his free e-newsletter and encourage others to do the same. A quick and easy sign-up is here. Also, please forward the subscription page to any person or group you think might be interested.

​Also, be social with Gordon. Please “like” Gordon Fischer Law Firm’s Facebook page, follow Gordon on Twitter, and connect with Gordon on LinkedIn and Google+. Links:

Facebook:

https://www.facebook.com/gordonfischerlawfirm

Twitter:

https://twitter.com/FischerGordon

LinkedIn:

​​https://www.linkedin.com/in/fischergordon

Google+:

https://plus.google.com/117606850043111451177/posts/p/pub

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