Thank you for reading the 25 Days of Giving series! In the spirit of the holiday season, I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.
I came across an article in Forbes about two tax court cases where families claimed large charitable contributions on their federal income tax and, given that they were fraudulent claims, failed to have the substantiation to back it up. As the article stated, “the IRS is NOT messing around when it comes to holding taxpayers to the substantiation requirements for charitable contributions.” The substantiation is required in exchange for the federal income charitable deduction.
First and foremost, the donations must be made to a qualified charitable organization.You must then be able to substantiate your contribution to said qualified charitable organization. The record-keeping required by the IRS depends on the amount of your contribution. At their most basic, the IRS substantiation rules for the charitable deduction are as follows:
Gifts of less than $250 per donee — you need a canceled check or receipt
$250 or more per donee — you need a timely written acknowledgment 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
Let’s focus for today on gifts of $250 or more per donee. Specifically, the income tax charitable deduction is not allowed for a separate contribution of $250 or more unless the donor has written substantiation from the donee of the contribution in the form of a contemporaneous written acknowledgment.
Note this $250 threshold is applied to each contribution separately. So, if a donor makes multiple contributions to the same charity totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required. [Unless the smaller gifts are related and made to avoid the substantiation requirements].
Written acknowledgment
The written acknowledgment must indicate:
the name and address of the donee;
the date of the contribution;
the amount of cash contributed;
a description of any property contributed;
whether the donee provided the donor any goods or services in exchange for the contribution; and, if so;
a description, and a good faith estimate, of the value of the goods or services provided or, if the only goods or services provided were intangible religious benefits, a statement to that effect.
Contemporaneous acknowledgment
The IRS definition of contemporaneous is that the acknowledgment must be obtained by the donor on or before the earlier of:
a. the date the donor files the original return for the year the donation was made; or
b. the return’s extended due date.
A donor cannot amend a return to include contributions for which an acknowledgment is obtained after the original return was filed.
Interestingly, the responsibility for obtaining this documentation lies with the donor. The donee (the charity) is not required to record or report this information to the IRS on behalf of the donor.
If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2015/04/spencer-imbrock-490831.jpg30944638Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-12-18 20:11:392020-05-18 11:28:4025 Days of Giving: Tax tip- Substantiation of Gifts of $250 or More per Donee
Thanks for reading the 25 Days of Giving series; this is the “gift” for day 17! 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 place of worship? Generally, churches are considered to be public charities. This means they are typically exempt from local, state, federal, and property taxes. This also means donations can be deducted if you itemize your federal income taxes.
Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. It’s a win-win situation: make a financially wise contribution AND a difference in an organization you care about.
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:
I know a farmer who 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. So are gifts of grain.
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.
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.
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 37%, 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
($370)
($370)
Federal capital gains tax savings
$0
($160)
Out-of-pocket cost of gift
$630
$470
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.
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:
The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
The gift must be made to an Iowa charity.
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.
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
($370)
Federal capital gains tax savings
($160)
Endow Iowa Tax Credit
($250)
Out-of-pocket cost of gift
$220
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 $370 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 $780. 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 than a quarter of it.
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.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2015/11/isak-dalsfelt-264495.jpg36015402Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-12-17 17:41:432020-05-18 11:28:4025 Days of Giving: Donate More to Your Place of Worship & Pay Less in Taxes
Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.
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.
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.
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!).
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.
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).
https://www.gordonfischerlawfirm.com/wp-content/uploads/2015/10/david-everett-strickler-60328.jpg32644928Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-12-16 16:48:422020-05-18 11:28:4025 Days of Giving: Help a Charity With Your Retirement Assets
25 Days of Giving: Tax tip- Substantiation of Gifts of $250 or More per Donee
Charitable Giving, Taxes & FinanceThank you for reading the 25 Days of Giving series! In the spirit of the holiday season, I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.
I came across an article in Forbes about two tax court cases where families claimed large charitable contributions on their federal income tax and, given that they were fraudulent claims, failed to have the substantiation to back it up. As the article stated, “the IRS is NOT messing around when it comes to holding taxpayers to the substantiation requirements for charitable contributions.” The substantiation is required in exchange for the federal income charitable deduction.
Note there is, of course, a limit to the charitable deduction on your taxes. Mind this when considering maxing out your charitable deduction.
Substantiation requirements
First and foremost, the donations must be made to a qualified charitable organization. You must then be able to substantiate your contribution to said qualified charitable organization. The record-keeping required by the IRS depends on the amount of your contribution. At their most basic, the IRS substantiation rules for the charitable deduction are as follows:
Gifts of $250 or more per donee
Let’s focus for today on gifts of $250 or more per donee. Specifically, the income tax charitable deduction is not allowed for a separate contribution of $250 or more unless the donor has written substantiation from the donee of the contribution in the form of a contemporaneous written acknowledgment.
The $250 threshold
Note this $250 threshold is applied to each contribution separately. So, if a donor makes multiple contributions to the same charity totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required. [Unless the smaller gifts are related and made to avoid the substantiation requirements].
Written acknowledgment
The written acknowledgment must indicate:
Contemporaneous acknowledgment
The IRS definition of contemporaneous is that the acknowledgment must be obtained by the donor on or before the earlier of:
a. the date the donor files the original return for the year the donation was made; or
b. the return’s extended due date.
A donor cannot amend a return to include contributions for which an acknowledgment is obtained after the original return was filed.
Responsibility lies with the donor
Interestingly, the responsibility for obtaining this documentation lies with the donor. The donee (the charity) is not required to record or report this information to the IRS on behalf of the donor.
If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.
25 Days of Giving: Donate More to Your Place of Worship & Pay Less in Taxes
Charitable Giving, Nonprofits, Taxes & FinanceThanks for reading the 25 Days of Giving series; this is the “gift” for day 17! 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 place of worship? Generally, churches are considered to be public charities. This means they are typically exempt from local, state, federal, and property taxes. This also means donations can be deducted if you itemize your federal income taxes.
Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. It’s a win-win situation: make a financially wise contribution AND a difference in an organization you care about.
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:
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 37%, and her capital gains tax rate is 20%.
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.
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:
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:
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 $370 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 $780. 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 than a quarter of it.
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.
25 Days of Giving: Help a Charity With Your Retirement Assets
Charitable Giving, Taxes & FinanceThanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.
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:
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.
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).