2018 newsletter cover

The December edition of GoFisch is live! Give GoFisch a read for:

  • Link to the top four most popular blog posts of 2017
  • A review of the firm’s successes in 2017 & a look ahead at 2018
  • Tips for setting charitable giving goals
  • Last minute year-end fundraising tips
  • News on how the new tax bill could affect Iowa nonprofits

Like what you read? Don’t forget to subscribe.

25 Days of Giving: Global Trends in Giving 2017 Report

The 2017 Global Trends In Giving report is full of important and valuable statistics for nonprofit professionals. These stats can help direct your donor plans and marketing strategies.

2017 Global Trends in Giving Report

But, December is an incredibly busy month with all the year-end fundraising pushes, and reviewing policies in prep for the coming year. So guess what? I read it for you! (You’re welcome.)

The 17-page study published by Public Interest Registry (PIR) and Nonprofit Tech for Good surveyed a global sample of 4,100 donors in the time period from May through June of this year. (It should be noted that although global, the sample swayed very heavily toward a majority of females in North America—approximately 50% from the U.S. and 25% from Canada).

Here are just a few of the most important insights from the report:

  • Holidays inspired a majority of donors (61%) to give…with, not at all surprisingly,  Christmas, being the most inspiring of all.  

Holidays Global Trends in Giving

  • Planning your social media awareness and advertising for the year ahead? Facebook remains the undisputed champion of online donations.

Social media giving stats from 2017 Global Trends in Giving Report

  • Your nonprofit’s website should end in .org. 72% of donors trusted the “.org” domain extension the most, while only 29% trusted “.com” domains.
  • In an eye-catching statistic, 69% of Millennial donors volunteered in the past year. Of these volunteers, three-quarters donated money to that same nonprofit.
  • A majority of donor participated in a “sustainer” program. Of these programs, donors most often participated in monthly programs.

Sustainer program statistics from 2017 Global Trends in Giving Report

  • A majority (59%) of women, prefer to donate online over other avenues. Additionally, women were most incentivized to give via social media (27%), followed closely by fundraising events (25%).
  • 44% of donors participated in a crowdfunding campaign over the past year. (The survey defined crowdfunding campaign as: “A crowdfunding campaign is when an NPO or NGO uses a website or app to raise a specific amount of money to fund a specific project or program.)
  • Fundraising events can be effective with donors; 59% of donors have attended a fundraising event in the past year. But, different invitation platforms inspire attendees at different rates. Look to email for the highest return on attendance (38%), and for a triaged approach, pair email with social media and marketing at other associated events.

Fundraising Events - 2017 Global Trends in Giving Report
Again, these are a just a few of the most important figures picked from an extremely well done and well detailed report, 2017 Global Trends In Giving. If you give the report a read, what were the most unexpected and unique statistics to you? I’d love to hear your thoughts and insights!

For any aspect of charitable giving planning, execution, as well as training I’m happy to provide beneficial services to to help you and your organization’s mission. Don’t hesitate to reach out via email or phone (515-371-6077) any time.

Iowa Court Rule 39.18

I regularly help and encourage my clients to complete business succession planning. So, I was immensely interested in fully understanding and helping to explain the Iowa Court Rule 39.18 which mandates some aspects of practice succession planning for active Iowa lawyers. I wrote extensively on the subject in a four-part series for The Iowa Lawyer (you can find links to all the articles here). But, with the deadline for compliance fast approaching it’s useful to have just the basic. The ISBA recently published my rundown of nothing but the essential in The Iowa Lawyer Weeklyand for convenience I’m publishing it here as well.


This short article directly informs every Iowa private practitioner precisely what s/he needs to know about new Iowa Court Rule 39.18. Under the Iowa Court Rule 39.18, Iowa-licensed lawyers must take steps to prepare for their own disability or death. New questions that are related to Rule 39.18 compliance will be included on the Iowa Client Security Commission 2018 Client Security Reports to be filed via the Iowa Office of Professional Regulation between Dec. 26, 2018 and March 10, 2018 without penalty.

Two Tiers

Iowa Court Rule 39.18 is divided into two tiers; the first tier is mandatory; the second tier is optional. The second, optional tier is very helpful, and I’d urge every Iowa layer to seriously look at implementing it. Considering that I write this in mid-December, however, it may be wise for Iowa lawyers to make certain they are in full compliance with the mandatory provisions, and give the optional provisions more full and careful consideration in 2018. Since this article is about just the basics, I’m just going to discuss only the mandatory provisions of Iowa Court Rule 39.18.

planner on desk next to computer

Choose Designee and Custodian

Every Iowa attorney in private practice must choose and identify both a designated representative and a custodian. The term designee representative(s) is defined, while the term custodian is not. The designated representative (hereinafter “designee”) must be either an:

  1. active Iowa attorney in good standing;
  2. Iowa law firm that includes Iowa attorneys in good standing (including the attorney’s own firm); or
  3. qualified attorney-servicing association.

A “qualified attorney-servicing association” is a bar association, all or part of whose members are admitted to practice law in the state of Iowa; a company authorized to sell attorneys professional liability insurance in Iowa; or an Iowa bank with trust powers issued by the Iowa Division of Banking.

(Important note: Earlier this month The Iowa State Bar Association Board of Governors authorized The ISBA to serve as a qualified attorney servicing association.) Again, the term “custodian” in not defined. The custodian can be anyone – a fellow lawyer, friend, spouse, administrative assistant, whomever.

Clients Lists and Client Files

Additionally, every Iowa attorney in private practice is responsible for the following: (1) maintaining a current list of active clients in a location accessible by the designee; (2) identifying the custodian to the designee; and (3) identifying the locations of the client list, electronic and paper files, records, passwords, and any other security protocols required to access the electronic files and records for the custodian and, ultimately, for the designee.

Client list Iowa Court Rule 39.18 files

Death or Disability

Iowa Court Rule 39.18 kicks into action only in two extreme circumstances: your death or your disability (a disability so severe you can no longer practice law, whether temporarily or permanently). Upon your death or disability, your designee is given broad authority, including the right to review client files (whether paper or electronic or both), notify each client of your death or disability, serve as a successor signatory for any client trust accounts, prepare final trust accountings for clients, make trust account disbursements, properly dispose of inactive files, and arrange for storage of files and trust account records. Also, the designee is authorized to access passwords and other security protocols required to access electronic files and records. Finally, as a “catch all” provision, the designee may determine whether there is need for other immediate action to protect the interests of clients.

Read More About Iowa Court Rule 39.18

If you would like to read deeper beyond these basics, click to the September through December 2017 issues of The Iowa Lawyer from the online archives to read our four-part series. In the series, all the elements (mandatory and supplementary) of Iowa Court Rule 39.18 are reviewed and explained in detail.

There is also a list of additional resources that can be found here. If you’re an active lawyer in Iowa help your fellow counselors out and share this piece with them so they will be prepared not only for the Iowa Client Security Commission 2018 Client Security Reports, but in the off chance of unexpected death or a disability. If you have any questions as you set your plans in place contact me by email or phone (515-371-6077).

man with fireworks - charitable giving

With ringing in the new year comes the inevitable resolutions to be happier, healthier, more productive…all good intentions. But, what if this year you make a different kind of resolution—an actionable goal that could make a difference in the causes you care about? How about a goal that goes beyond yourself and could also have a positive impact on your community? This year I implore you to make at least one charitable giving goal. A giving goal can be a “resolution” you actually keep after the snow melts. How? With the right plan in place!

 

woman looking at fireworks

Similarly, I encourage my clients to determine their estate planning goals. These goals help guide me in drafting a personalized estate plan and determining which documents and provisions are needed. After all, every Iowan, family, and business is unique. Charitable giving goals can work the same way as a guiding blueprint for the who, what, when, and why of giving.

Use the following information to set your charitable giving goals for the new year!  

tips for setting charitable giving goals

Set a budget.

Of course, to begin, you’ll need to examine your entire budget including income, committed expenses (such as rent/mortgage payments, all bills, healthcare costs, etc.), to determine your discretionary income—this is the money you have left over after your committed expenses.

 

Along with your budget you should also consider whether larger one-time donations or recurring (perhaps monthly) donations work better for your budget, personality, and spending habits. A one-time donation may help prevent money from being spent on other discretionary choices. On the other hand, a repeated, monthly donation may help divide the total amount up into manageable sums. And, monthly donations can often be configured to automatically be made from your account which makes it easy to set the figure at the beginning of the year and make it a regular expenditure. Nonprofit organizations are grateful for all charitable contributions, but recurring, monthly gifts make their budgeting easier.

Look at the big picture.

big picture giving

 

Step back from the accounting weeds for a moment and sit down with a plain piece of paper. Write down the causes and organizations you care about. If you feel passionate about a certain issue, but don’t know of a specific charity off the top of your head that is addressing the issue, make a note of it. Your list doesn’t have to be long, just true to you.

Then, commit to research to determine which organizations are going to invest your money toward a mission that aligns with your own ethos. Some things to consider about a charity:

  • Financial health. Tax-exempt organizations have to file Form 990 (officially, the “Return of Organization Exempt From Income Tax”)  with the IRS. This form details the organization’s financial information and is available to the public. Do a search on a database such as the Foundation Center, for a charity you’re considering donating to, and review the financial data.
  • What’s the charity’s commitment to transparency? How about accountability?
  • What’s the organization’s Charity Navigator rating, if any? Charity Navigator’s rating system examines a charity’s performance in the areas of financial health and accountability/transparency, and presents it in an easily discernible way.
  • Is the organization a public charity or private foundation? This will have an impact on your federal income tax charitable deductions.
  • Is the organization based in the U.S. or is it a foreign charity? (Generally, if the donee is a foreign charitable organization, an income tax deduction is unavailable.)

Of course, if you’re personally involved with an organization through volunteering, fundraising, or the like, that’s a good way to “know” the charities as well. Research will empower and embolden your charitable goals if you know your donation is going to an upstanding, trustworthy operation.

Seek advice.

 

If you made a goal to increase muscle mass, you would likely seek the services of a personal trainer. If your goal is to eat healthier? Maybe a nutritionist. When the goal is to be committed to smart charitable donations, you’ll want to enlist the likes of your lawyer, accountant, and/or financial advisor. Seek out a professional who has experience working with nonprofits, the tax code, and strategies for intelligent giving. This pro can and should be able to help you put your plan into action.

(This tip also applies to practicing charitable giving through your estate plan—something you should definitely hire an estate planning lawyer for to make sure the estate plan is properly, legally executed.)

https://www.gordonfischerlawfirm.com/lawyer-write-estate-plan/

Focus efforts / limit charitable targets.

Smart charitable giving means a vested commitment toward a cause or organization’s advancement, as well as financially beneficial tax deductions for you. Unlike investments where the general advice is to diversity to reduce risk, in the realm of charitable giving the opposite may well be true. You may well receive the greatest “return” by concentrating your giving on a fewer, rather than more, organizations. Consider giving to two or three nonprofits to magnify your impact.

If you’re ready to commit to charitable giving goals you can actually keep I’m happy to offer advice and strategy. Don’t hesitate to reach out via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

 

 

The December/January issue of The Iowa Lawyer magazine is out! Click here and scroll to page 13 to read the final piece in my four-part series on the practical application of Iowa’s new succession planning rule for lawyers and law firms. “Giving for good: Practical application of Iowa Court Rule 39.18” covers how the rule may well significantly increase charitable giving by Iowa attorneys through both business succession planning and personal estate planning.

Iowa Court Rule December Article

While the series is targeted toward Iowa lawyers, the advice throughout can be applicable to individuals in need of personal estate planning as well as business owners in need of business succession plan. Click on the following links to read the past articles related to the Rule.

  1. September issue: overview of Iowa’s new succession planning rule and the importance of personal estate planning as well
  2. October issue: 8 simple steps for a successful business succession
  3. November issue: benefits of a supplemental plan

This month’s Iowa State Bar Association publication also includes features on: issues and roles of startups and in-house counsel; Larry Johnson Jr., the new State Public Defender; cover story on intellectual property lawyer, Brandon Clark; periodic cost-of living adjustments for indigent defense compensation; data on the realities of attracting young attorneys to the state’s small towns; and the Kids First Law Center, among other great pieces.

If you would like to discuss any questions or concerns related to personal estate planning or a succession plan for your business (including law firms), don’t hesitate to contact me.

woman holding sparkler for stocks

Thanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects of charitable giving each day through Christmas.

A less-than-obvious, but ideal asset for charitable donations is appreciated, long-term, publicly traded stock. Before we list the benefits, let’s break down the terms.

Definitions

Appreciated simply means increased in value.

Long-term means stock held for more than one year; stock held for 366 days. A long-term capital asset is generally taxed at a lower rate.

Publicly traded stock just means a publicly held company whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets.

Benefits

The benefits of charitable gifts of appreciated, long-term, publicly traded stock are numerous.

Under federal tax law, charitable gifts of appreciated, long-term stock have a double benefit: (1) the long-term capital gain is excluded from taxable income, and (2) the charitable contribution deduction is the fair market value of the stock. Click to this other blog post I wrote to see a case study example comparing a donation of straight cash versus a donation of appreciated stock. 

Iowa law also provides a third benefit for making a charitable gift of stock; donors can receive a state tax credit of 25% of the gift under the Endow Iowa Tax Credit Program. Interested? Explore the details of Endow Iowa here.

As if that wasn’t enough to convince you there’s yet another benefit. The substantiation rules for gifts of donated securities are more relaxed than for gifts of other type of donated property. Gifts of publicly traded securities do not require an appraisal to document value. This is important, as non-cash gifts of more than $5,000 generally require a qualified appraisal by a qualified appraiser. This requirement can be quite complicated, so you’re welcome to read more on it here. (In case you were wondering, the value of gifts of publicly traded securities are based on a simple calculation: the arithmetic mean of the highest and lowest selling prices on the date of the gift.)


If you’re interested in gifting stock to a qualified charity as a part of your end of year giving, make sure you’re doing so in a way that maximizes all of your financial benefits. Or, if you’re a nonprofit leader wanting to accept gifts of stocks, don’t hesitate to reach out via email or phone (515-371-6077) if you would like to discuss further.

5 giving packages

It’s been said, “You should be giving while you are living, so you’re knowing where it’s going.” Giving now allows you more say over how your gifts are handled, and you’ll get to experience the joy that comes with helping the causes you care for most. Gifts to charities made during your lifetime also provide significant tax advantages. Here are five pro tips to stretch your charitable dollar.

Pro tip #1: Don’t give cash.

Sure, it’s easiest to give by cash or check. But, cash gifts are not tax-wise gifts…almost any other asset is a smarter, tax-wise gift than cash! As you’ll see throughout this short article, it makes much more tax sense to give other, less obvious assets.

giving-cash

 

Pro tip #2:  Use the federal income tax charitable deduction.

I once read a Forbes article where the journalist said she cringes at church, when the collection plate goes around. The reason? The columnist worries churchgoers who toss in cash aren’t keeping records, and so are losing money by not claiming the federal income tax charitable deduction.

I don’t go that far, I don’t cringe in church, but I do think we should all keep records of our charitable gifts. What information you have to keep, and may need to provide to the IRS, depends on the size of your gift.

Pro tip #3: Use appreciated assets.

Gifts of long-term capital assets can receive a double federal tax benefit. Long-term capital assets may include items such as stock, real estate, and farmland, or even artwork, or collections like stamps or coins. The first tax benefit was just discussed; donors can receive an immediate federal income tax charitable deduction, equal to the fair market value of the long-term capital asset. Second, assuming the donor owned the asset for more than one year, the donor can avoid long-term capital gain taxes which would have otherwise been owed if the asset was sold instead of donated.

https://www.gordonfischerlawfirm.com/gifts-of-long-term-versus-short-term-capital-gain-property/

Pop quiz!

Let’s look at a concrete example to make sure the first three pro tips are clear. Pat owns farmland and she want to give one acre. Let’s assume one acre has a fair market value of $1,000. She wants to use the farmland to help her favorite causes. Which would be better for Pat — to sell the farmland and donate the cash, or give the farmland directly to her favorite charities? Assume the farmland was originally purchased at $200 (basis), Pat’s income tax rate is 37%, and her capital gains tax rate is 20%.

donate farmland over cash table

NOTE: Above table is for illustrative purposes only. Only your own financial or tax advisor can advise in these matters.

Pat receives a double benefit; she gets a federal income tax charitable deduction equal to the fair market value of the asset, AND avoids paying capital gains tax.

Pro tip #4: Make gifts which are eligible for the Endow Iowa Tax Credit

Through the Endow Iowa Tax Credit Program, donors can receive a 25% state tax credit for gifts made during lifetime. Endow Iowa has three requirements to qualify. The first two requirements are simple, but the third requirement can be tougher to meet.

  1. The gift must be given to, and receipted by, a community foundation. Opening a fund at your local community foundation is easy.
  2. The gift must be made to an Iowa charity. If it’s a national charity, and not a statewide or local organization, you simply need to check if they have an Iowa arm, and many do. In other words, to get the Endow Iowa tax credit, you couldn’t give to Girl Scouts of America, while you could give to Girl Scouts of Greater Iowa. To get the Endow Iowa tax credit, you couldn’t give to National Public Radio, but you could give to Iowa Public Radio.
  3. This third requirement is a bit more difficult than the first two. The Endow Iowa Tax Credit Program was designed to encourage endowments. Endowment means a permanent fund—something that will go on forever. So, to get the Endow Iowa tax credit, there is a limit on spending; you can only give out a maximum of 5% per year. This may, or may not, square with your charitable goals. Yet, for a tax credit of 25% off your gift, it’s something to seriously consider.

Endow Iowa Tax Credits are capped. The Iowa Legislature sets aside a pool of money for Endow Iowa, and it’s available on a first-come, first-served basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. However, you can submit your application to be placed on the wait list for the next year’s tax credits.

Endow Iowa also has a cap for individuals and couples. Tax credits of 25% 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 (if both are Iowa taxpayers).

giving compass hand

Pro tip #5: Combine Pro Tips #1-4 for dramatic tax savings.

Combine the first four pro tips! If you combine the first four pro tips, you can achieve dramatic tax savings. Let’s look again at the case of Pat and her donation of a long-term capital gain asset (her farmland) with the addition of the Endow Iowa Tax Credit. Check out Pat’s tax savings:

Endow Iowa tax credit table

NOTE: Above table is for illustrative purposes only. Only your own financial or tax advisor can advise in these matters.

Pat gave her favorite charity $1,000 in the form of a long-term capital gain asset. After Pat combines the federal income tax charitable deduction, the capital gains tax savings, and the Endow Iowa Tax Credit, the out-of-pocket cost of that gift of $1,000 is less than $250. Because her gift was endowed, it will be invested by the local community foundation and presumably will grow. It will continue benefiting the charities Pat cares about, forever…talk about a legacy!

Let’s Talk

Remember, all individuals, families, businesses, and farms are unique and therefore have unique tax and legal issues. This article is presented for informational purposes only, not as tax advice or legal advice for an individual’s situation. If you would like to discuss how you can help the causes you’re passionate about, while also making smart tax decisions, don’t hesitate to reach out via email or phone (515-371-6077).

Thanks for reading the 25 Days of Giving series; this is the “gift” for day 3! Plan on coming back to the blog every day from now through Christmas Day.

Might this be a good season to consider being more generous to your church? Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. Its a win-win situation: make a financially wise contribution AND a difference in an organization you care about.

prayer and bible

Tip 1: Consider All Your Assets

You need to consider ALL your assets for smart giving. Don’t just consider cash, but look at your entire basket. Here are three real-world examples:

  1. I know a farmer who doesn’t have 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. So are gifts of grain.
  2. I know a young person who’s self-employed. Again, not lots of cash on hand. But, this person inherited an IRA from a relative, and must make annual required minimum distributions [RMDs]. IRA RMDs can be a tax-wise gift.
  3. I also know a couple who recently retired. The couple has three life insurance policies, which made lots of sense when their kids were younger. Their kids are now grown and independently successful. A paid up life insurance policy could be signed over to their favorite charity.

Your individual facts and circumstances are unique. Consider seeking a qualified attorney or financial advisor to look at your whole basket of assets.

Tip 2: Consider Long-Term Capital Gains Property

Gifts of long-term capital assets, such as publicly traded stock and real estate, may receive a double federal tax benefit. Donors can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock or real estate.

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 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.

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 an example to make this clearer. Sara Donor owns stock with a fair market value of $1,000. Donor wants to use the farmland to help her favorite causes. Which would be better for Sara? To sell the stock and donate the cash? Or, gift the stock directly to her church? Assume the stock was originally purchased at $200 (basis), Sara’s income tax rate is 39.6%, and her capital gains tax rate is 20%. 

Donating cash versus donating long-term capital gain assets, such as publicly traded stock Donating cash proceeds after sale of stock Donating stock directly
Value of gift $1,000 $1,000
Federal income tax 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 made during lifetime, such as stocks or real estate, 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.

stocks on ipad

Tip 3: Consider Endow Iowa Tax Credit Program

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:

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
  2. The gift must be made to an Iowa charity.
  3. The gift must be endowed (i.e., 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. This final requirement is a restriction, but still, in exchange for a 25% state tax credit, it must be seriously considered by Iowa lawyers and donors.

Tip 4: Combine the First Three Tips!

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

Tax benefits of donating long-term capital gain asset with Endow Iowa
Value of gift $1,000
Federal income tax 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 Sara’s significant tax savings! In this scenario, Sara 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, Sara 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.

giving package with green spruce

Each donor’s financial situation and tax scenario is unique; consult your own professional advisor for personal advice. I’m happy to offer you a free consult to discuss your charitable giving options. I can be reached by phone at 515-371-6077 or by email.

Hands giving ornament

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

25 days of Christmas - Holiday giving

Tangible personal property is a fancy way of saying “stuff,” such as a painting, computer, furniture, and collectibles (excluding securities, cash, and real estate).  So, if you want to donate your stuff to your favorite charity, what are the tax consequences?

Related Use

The amount of your federal income tax charitable deduction depends on the concept of “related use.” If appreciated tangible personal property is considered related to the charity’s exempt purpose, the deduction is based on fair market value (FMV) and available to the extent of 30% of your adjusted gross income (AGI).

If appreciated property is considered related to the public charity’s exempt purpose, the deduction is based on fair market value and available to the extent of 30% of the donor’s contribution base. If property is considered unrelated to the public charity’s exempt purpose, you must reduce the FMV by any amount that would have been long-term capital gain had you sold the property for its fair market value. (In short, if the FMV was greater than the basis in the property, your deduction is limited to your basis.)

To sum it up: in order for a donor of tangible personal property to be able to deduct its full FMV, the charity must use the object in a manner that is related to its (the charity’s) exempt purpose. A classic example is the gift of a piece of art, like a sculpture or painting, to an art museum.

Hypothetical

This concept of “related use” can have very profound tax consequences. For instance, assume Jill Donor owns a painting which is now worth $100,000, but Donor purchased it for only $20,000.

If Donor gives this painting to an art museum that keeps and displays the painting, Donor can deduct the painting’s full $100,000 FMV. If Donor gives the same painting to, say, a nature conservancy, which will sell the painting and use the proceeds, Donor can deduct only her $20,000 cost.

Note, that even if the object is potentially related to the charity’s mission – such as a painting given to an art museum – if the charity’s intention is to sell it upon receipt, then the gift is not for a related use and the donor’s deduction will be limited accordingly.

From our hypothetical, it doesn’t necessarily have to be gifted to a museum to be considered for a related use. In Private Letter Ruling 9833011, the IRS ruled that a gift of art to a Jewish community center would be for a related use, as the artwork had both religious and cultural significance. Also, a painting gifted to, say, a hospital may be for a related use, if the hospital will display it in a common area so that it helps foster a healing environment for patients.

Takeaway

The big takeaway for nonprofits? Nonprofit boards and staffs should know and understand about “related use,” so they can recognize the issue if it arises.

The big takeaway for donors? The donor should obtain, in writing, the charity’s intent to use the property for a purpose related to its mission.

I want to help you, whether you’re a nonprofit organization or donor, wisely maximize your charitable giving. Don’t hesitate to reach out by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com).

blue and tan present

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

25 days of Christmas - Holiday giving

In December there is gift giving with wrapping paper abound, but when it comes to charitable giving the important assets (like your retirement assets) don’t need ribbons or bows. Let’s first focus on a major retirement asset giving tool, the IRA charitable rollover.

IRA Charitable Rollover

This federal law allows donors age 70½ and older to make direct distributions of up to $100,000 from his/her IRA each year to any qualified charity. The donation is not treated as taxable income and, moreover, counts toward the donor’s required minimum distribution for that year.

At the end of 2015, Congress made the IRA charitable rollover a permanent giving tool, unlike the year-to-year renewal basis they had operated on since the introduction of the IRA charitable rollover in 2006 (as part of the Pension Protection Act).  The result? Tax savvy IRA account holders can now plan charitable giving in a more reliable way.

Other Options

There are two other accessible ways to direct retirement benefit plan assets to your favorite charity:

  • Gifts at death via beneficiary designations.
  • Withdrawals over age 59½ followed by outright deductible gifts that can effectively result in tax-free retirement plan gifts.

Keep in mind, too, that the IRA charitable rollover applies only to IRAs. These two options — gifts at death via beneficiary designations and withdrawals by those older than 59½ — will work with virtually all qualified retirement plans, including 401(k)s and 403(b)s.

Lights and small house - for charity

Naming your favorite charity as beneficiary

Donors considering charitable bequests may not realize that they can make a meaningful gift simply by naming their favorite charity as the beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is easy, and does not require drafting or amending a will or trust. A donor simply has to contact his/her financial institution holding the retirement benefit plan and request a change of beneficiary form.

Note, however, that if the account holder is married, the spouse should be informed and may have to consent to the gift. The plan assets may also be left to a charitable or marital trust[s]. In the latter case, professional advisors should be consulted. (Hint: call me!).

Give now!

Donors could also choose to make current gifts using funds withdrawn from their qualified retirement plans. Individuals over age 59½ may generally withdraw funds from retirement plans without penalty, make a gift with these funds, and then claim an offsetting charitable deduction. In most cases, a gift made in this manner will be a “wash” for tax purposes.

Let’s take a quick example. Rebecca (age 64) wants to make a very generous donation of $10,000 to her favorite charity. She can withdraw $10,000 from her IRA or 401(k) account, and make that donation. Assuming she itemizes her tax deductions, the $10,000 donation should leave her “even Steven” with regard to taxes – the $10,000 in income is offset by the $10,000 charitable deduction, resulting in zero net income taxes.

Advice is Priceless

The decision to want to give to you favorite causes this season is easy. Knowing exactly where to start with smart giving can be a little more complex. If you have questions about the IRA charitable rollover or any other giving strategy, don’t hesitate to reach out via email or by phone (515-371-6077). My firm’s mission is to maximize charitable giving in the state of Iowa and I want to help YOU maximize your personal charitable giving (in a way that is also tax efficient).