Earlier this month we launched fireworks, grilled burgers, and spent time with loved ones while celebrating the Fourth of July. America’s Independence Day stands as a surrogate of sorts for the ideals that our great nation was built on. The Fourth of July has always been a special holiday for me, and my family, as my parents immigrated to America from Germany just before the Iron Curtain came down.

Along with life, liberty, and the pursuit of happiness, I like to highlight the freedom we have to give charitably to the causes and organizations that are important to us. The most economical, tax-wise philanthropy can involve unique strategies (like “bunching” multiple years’ worth of giving into one year) and gifting non-cash assets (such as appreciated stocks). You can also consider writing charitable bequests to the tax-exempt organizations you support into your estate plan. The bottom line? There are so many different, effective charitable giving tactics you can employ to support your community. In turn, it makes America an even better place to live!

I’ve blogged about many, many tax-wise charitable tools and techniques, but here are just four (in honor of July 4th) you ought to consider (in no particular order):

Charitable Gift Annuities (CGAs)

A charitable gift annuity is a contract. More specifically, it’s a contract between a donor and a charity, whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity.

Charitable Remainder Trusts (CRTs)

A charitable remainder trust is a very useful type of trust. It’s an an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities. I break down CRTs here.

Charitable Lead Trusts (CLTs)

A charitable lead trust is perhaps most easily defined as the inverse to the charitable remainder trust (CRT). A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries.

Simple Bequests

We may forget with all the fancy tools and techniques that are available, but let’s not forget that a simple bequest, to the charity or charities of your choice, can be incredibly powerful! In fact, even a game changer for many nonprofits. Consider adding your favorite charity to your will. And if you don’t have a will yet, that’s the first step you should take. You can download my EPQ for free to get started on building the estate plan that will help provide for your family AND favorite causes.

green plant growing

Whatever your giving goals and financial situation, I can help you structure your philanthropic gifts, so they provide maximum tax-wise benefits, while also ensuring your charitable intent is both respected and followed. Get smart about giving and contact me at Gordon@gordonfischerlawfirm.com or 515-371-6077. I offer everyone a free one-hour consultation.

The #SweetSixteen is a time of celebration for teams which made the elite group. Similarly, with charitable gift annuities (CGAs), donors can experience the joy of giving to their favorite causes. But, unlike making the Sweet Sixteen, CGAs aren’t hard, they are relatively easy to understand and execute. Also unlike the Sweet Sixteen, CGA donors don’t have to be part of an elite group; all donors, regardless of income, or class, or status, can enjoy the many benefits CGAs offer.

ABCs of CGAs

A CGA is easy to understand, about as easy as a fast break lay-up. A CGA, put simply, is a contract. Specifically, a CGA is a contract in which a charity agrees to pay a fixed amount of money to one or two individuals for their lifetime(s), in return for a transfer of assets (such as, say, cash, stocks, or farmland).

A person who receives payments is called an “annuitant” or “beneficiary.” After the annuitant(s) die(s), or the term of the contract ends, the charity keeps the remainder of the gift.

Sixteen Sweet Benefits of a CGA

Before we go deep into CGAs, I’ve listed 16 key advantages of CGAs.

  1. CGAs are simple to execute.
  2. CGAs are (relatively) easy to understand and explain.
  3. CGAs avoid management responsibilities.
  4. CGAs may be executed during lifetime (called an inter vivos transfer), or by operation of a will (called a testamentary transfer).
  5. CGAs allow a donor to provide a consistent stream of income for others.
  6. CGAs pay lifetime income to one or two individuals, part of which is (most often) a return of principal and free from income tax.
  7. CGAs provide an immediate income tax charitable deduction for the donor for the gift portion.
  8. When appreciated property (such as stock or real estate) is provided to fund a CGA, and the donor is an annuitant, some of the capital gain is spread over the donor’s life expectancy, and the rest is never recognized because it is attributed to the gift portion.
  9. Depending on all the circumstances, CGAs can possibly save a donor taxes on Social Security benefits.
  10. The income payout from CGAs can begin immediately or can be deferred.
  11. The income payout from CGAs is guaranteed.
  12. The income payout from CGAs is fixed (e.g., same amount is paid each payment period).
  13. The charity’s obligation to make the income payout is backed by the general assets of the charity.
  14. For some donors, especially in today’s low-interest environment, CGAs may present an attractive alternative to CDs.
  15. In certain situations, CGAs can supplement retirement income.
  16. CGAs provide the joy of giving to your favorite causes.

basketball court with ball in hoop

Three More Points on the Scoreboard—Three Types of CGA Agreements

1. Immediate Gift Annuity

Under an immediate gift annuity, the annuitant(s) start(s) receiving payments at the start/end of the payment period immediately following the contribution. Payments can be made monthly, quarterly, semi-annually, or annually.

2. Deferred Gift Annuity

Under a deferred payment gift annuity, the annuitant(s) start(s) receiving payments at a future time, the date chosen by the donor, which must be more than one year after the date of the contribution. As with immediate gift annuities, payments can be made monthly, quarterly, semi-annually, or annually.

3. Flexible Annuity

Under a Flexible Gift Annuity (also known as a Deferred Payment Gift Annuity), the donor need not choose the payment starting date at the time of her contribution. The annuitant (who, remember, may or may not be the donor) can choose the payment starting date based on their retirement date or other considerations.

Jump Ball—Choosing Start Date of Deferred CGA

Under an immediate gift annuity, annuity payments begin no later than one year after the initial contribution.

A deferred gift annuity allows the donor to delay the start date of annuity payments. This delay will increase the annuity amount when payments begin and result in a larger income tax charitable deduction which is available in the year of the contribution (subject, as are all charitable donations, to Adjusted Gross Income (AGI) limits).

A deferred gift annuity can produce current tax savings during high-earning years while creating a supplemental retirement income. Generally, the donor sets a date for the deferred gift annuity to begin. However, the IRS approved a deferred gift annuity which did not specify a fixed starting date for the annuity payments [IRS Ltr. Rul. 9743054].

Don’t Foul Out—Charities Issuing CGAs Must Follow Certain Rules

CGAs are an exception to the general rule that charities cannot issue commercial insurance contracts. As such, charities which issue CGAs must comply with several rules. The basics of the rules may be simplified as follows:

  • The present value of the annuity must be less than 90 percent of the total value of the property transferred in exchange for the annuity. In other words, the charitable interest must be at least 10 percent.
  • The annuity cannot be payable over more than two lives, and the individual(s) must be alive at the time the gift annuity is set up.
  • The gift annuity agreement cannot specify a guaranteed minimum, nor a maximum, number of annuity payments.
  • The actual income produced by the property transferred in exchange for the gift annuity cannot affect the amount of the annuity payments.

Four Point Play—Tax Advantages

In basketball, a four-point play is the rare occasion when a player makes a three-point shot while being fouled. Similarly, it is rare for a charitable gift to offer four potential tax advantages to donors, as the CGA does. The CGA can have a positive effect on the donor’s charitable deductions, income taxes, capital gains taxes, and gift taxes.

slam dunk with a basketball

Federal Income Tax Charitable Deduction

A CGA is considered part gift and part sale, as the donor contributes property in exchange for annuity payments from the charity. The donor who itemizes deductions on her taxes may take an income tax charitable deduction for the gift portion (i.e., the value of the transferred property minus the present value of the annuity).

This income tax charitable deduction is subject to the same limits as an outright gift of cash or property. For example, if cash is transferred for the CGA, the limitation of the deduction is 50 percent of the donor’s AGI. Or, if long-term capital gain property is transferred the limitation is 30 percent of AGI. Any deduction in excess of the applicable percentage limitation may be carried forward for five years.

Taxation of Payouts

The annuity payments by the charity under a CGA are treated for income tax purposes as follows:

  1. Tax-free return of principal
  2. Long-term capital gain
  3. Ordinary income

Let’s break each of these categories down.

Tax-Free Return of Principal

A portion of each payment received by the donor, or other annuitant, is a tax-free return of principal until the cost of the annuity is fully recovered when the annuitant reaches life expectancy. Put another way, a portion of the payments is considered to be a partial tax-free return of the donor’s gift, which are spread in equal payments over the life expectancy of the annuitant(s).

The assumed cost of the annuity does not include the gift portion of the transaction. The donor’s cost basis must be allocated between the gift and sale portions in accordance with the respective proportions of the value of the property transferred.

Long-Term Capital Gain

When a taxpayer sells long-term, appreciated property, such as stocks or real estate, she generally pays capital gains on the appreciation. If long-term, appreciated property funds a CGA, a portion of each payment will be taxed as long-term capital gain. This will reduce the income tax-free return of principal portion of the annuity payments.

Under general tax rules, long-term capital gain is recognized in the year the property is sold. Capital gain is recognized only on the sale portion of the transaction and with the basis allocation previously described. However, with a CGA, the donor may spread the gain over life expectancy, assuming either a sole annuitant, or the donor has another individual named as a survivor annuitant. It’s obviously beneficial for a donor to be able to defer capital gains taxes.

Ordinary Income

After the capital gain and tax-free portions of the annuity payment have been determined, the balance of the payment will be taxed as ordinary income.

Gift and Estate Taxation

If the donor is the sole annuitant, there are no gift or estate tax issues because both the annuity is her own and the annuity terminates at death. If the donor names anyone other than herself as an annuitant, gift and estate tax issues may arise.

Regarding the gift tax, if the donor names another person as an annuitant, the gift is the value of the annuity. An exception exists for a spouse under the gift tax marital deduction. Another alternative to avoid gift tax: the donor could retain the right to revoke when the named annuitant has a survivor interest.

Regarding the estate tax, if the donor names another person as an annuitant, the remaining value in the annuity is considered part of the donor’s estate. An exception exists for a joint annuity using only the donor’s life as the measuring life. Of course, there is also an estate tax marital deduction available if surviving annuitant is a spouse.

Low Interest Rates = Higher Tax-Free Income

The Applicable Federal Rate (AFR) selection decision is more nuanced for gift annuities than for other planned gift tools. A donor who wants to maximize their deduction will select the highest rate available, but this reduces the overall value of the annuity and increases the amount of the charitable gift. Conversely, a donor who wants to maximize the income tax-free portion of the annuity payments will select the lowest available rate.

When the Clock Runs Out—Testamentary CGAs

If carefully planned, it is possible to arrange a CGA through a will. The IRS approved a testamentary gift annuity in Ltr. Rul. 8506089. It is of course crucial that both the bequest amount and annuity payout are made clear by the terms of the will.

A donor should engage an expert estate planning expert to handle the careful drafting needed for a testamentary CGA. A donor, together with his estate plan professional, should address two issues:

  1. What if the designated annuitant(s) predecease(s) the testator? (The testator is the person who makes the will).

The donor may want to specify a contingent annuitant, or provide for an outright bequest to the charity.

2.    What about the payout rate?

The donor could (or should) leave the charity some flexibility in the payout rate, to assure the 10 percent minimum charitable interest requirement can be met in the future.

Winning Point

Donors, and nonprofits, can score big with CGAs and this charitable tool can be a slam dunk for all parties.


The mission of Gordon Fischer Law Firm, P.C. is to promote and maximize charitable giving in Iowa. Gordon offers training on complex gifts, like CGAs, for nonprofit boards, staff, and stakeholders. Contact him for a free one-hour consultation. Gordon can always be reached at Gordon@gordonfischerlawfirm.com or at 515-371-6077.

green beer

In the spirit of St. Patrick’s Day, pour yourself a pint, and read up on some simple, yet smart, charitable giving strategies. Whether you want to support the great work of an Oscar Wilde literary foundation or an Irish heritage association, tools and benefits that align with your charitable giving goals can help to stretch your green and make a difference in the causes you care about.

Top O’ the Morning Giving: Now Rather than Later

four leaf clover

It’s been said, “you should be giving while you are living, so you’re knowing where it’s going,” so let’s explore a few options in the case of a hypothetical Irish Iowan, Sinead O’Sullivan.

Sinead O’Sullivan intends to donate to charity eventually, at death through her will and estate plan. But why not give now? Sinead 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 Sinead to give now rather than later. Let’s look at these potential positive tax benefits.

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, Sinead can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock, real estate, or farmland. Even with the increased standard deduction under the Tax Cuts and Jobs Act (which goes into effect for the 2018 tax year), this is still a valuable consideration give the value of  charitable donation would exceed the standard deduction. (It would be especially beneficially if Sinead is considering “bunching” as a tax saving strategy.)

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

Guinness door

Let’s look at a concrete example to make this clearer. Sinead owns shares of publicly-traded stock in Diageo (Guinness‘ parent producer and distributor company), with a fair market value of $100,000. She wants her stock to help her favorite causes. Which would be better for Sinead (a single taxpayer) to do—sell the stock and donate the cash, or give the stock directly to her favorite charities? Assume the stock was originally purchased at $20,000 (basis), Sinead’s federal income tax rate is 37%, 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 $100,000 $100,000
Federal income tax charitable deduction ($37,000) ($37,000)
Federal capital gains tax savings $0 ($16,000)
Out-of-pocket cost of gift $63,000 $47,000

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

In Iowa, however, there is even more potential tax benefit.

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 only 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 – 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.

Let’s look again at the case of Sinead, who is donating stock per the table above. If Sinead makes an Endow Iowa qualifying gift, the tax savings are very dramatic. There are potentially huge tax benefits of donating long-term capital gain assets, such as stocks, real estate, and farmland, while claiming the Endow Iowa Tax Credit:

Value of gift $100,000
Federal income tax charitable deduction ($37,000)
Federal capital gains tax savings ($16,000)
Endow Iowa Tax Credit ($25,000)
Out-of-pocket cost of gift $22,000

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

Put another way, Sinead made a gift of $100,000 to her favorite charity, but the out-of-pocket cost of the gift to her was less than $25,000.

This is a great deal for Sinead and a great deal for Sinead’s favorite tax-exempt organizations. But, to be a smart donor you must also of course consider the potential areas of caution as well as the benefits.

Endow Iowa: For Good For Iowa For Ever

Cautionary Ballads

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 for 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. It’s a wise idea to engage the right financial and legal 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-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the wait list for 2019 tax credits.

Endow Iowa also has a cap per individual. 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.

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 your own professional for personal advice.

Sláinte!

 

rainbow

Our case study subject, Sinead, found the pot o’ gold at the end of the charitable giving rainbow by working with a qualified attorney who specializes in complex donations. You may not be in the same tax bracket as Sinead or have stocks valued at the same rate, but regardless, I would recommend to all donors with large gifts (especially assets of the non-cash variety). Want to discuss your giving goals and options for long-term capital assets? I offer a free consult to all, so don’t hesitate to contact me.

Talk to anyone finalizing their bracket before the NCAA tournament tips off today with the first half of the First Four games and there are many different approaches—statistics and rankings; gut instinct; fan favorites; taking advice from computer simulations; and simply, the random dart throw.

Here at Gordon Fischer Law Firm we’re passionate about promoting and maximizing charitable giving in Iowa, so we decided to incorporate that into our approach for this year’s NCAA tournament bracket. We compiled a list of the 68 college and university endowment size and then built off our bracket off of that. So, the winner of each round has the greater endowment of the two teams which brings us to a clear winner. An unconventional way of bracketing? Sure. Totally plausible? Why not!

The bracket was too large to fit into one image on this blog, so we cut it into multiple images.

top half bracket

final four

ncaa bracket bottom half

Of course, we totally recognize that there’s no way that the size of a higher education institution’s endowment translates directly into athletic excellence. But, there is something to be said that charitable giving reaps benefits beyond the immediate, so maybe this isn’t such a shot in the dark!

While we’re at it, this is also a good opportunity to review what a college endowment actually is. No doubt you’ve heard of this term related to charitable giving before, but what is it actually?

Endowments: A Short Explanation

A college or university endowment fund invests charitable donations (of money or other assets, like stocks) with the goal of growing the principal amount. There are restrictions, limits, and particular details associated with endowments (but those deserve their own full blog post). In turn, the funds’ spending amounts can be spent on scholarships, facilities improvements, hiring talented personnel, and even paying outstanding debts and expenses. Undoubtedly, colleges and universities foster planned giving programs and cultivate dedicated donors to continue to grow their endowments and thus grow their institution’s capabilities.

basketball game players

So, maybe the GFLF bracketing style isn’t so farfetched. The bigger the endowment could equate to greater scholarships (in both quantity and quality) or nicer athletic facilities which could translate into attracting more talented student athletes.

How does your bracket stack up in comparison? I’d love to talk basketball or, better yet, about smart charitable giving to your favorite higher education institution could fit with your giving goals. Contact me in between the tournament games via email or by phone (515-371-6077)

business papers

I write a lot about individuals conducting charitable giving and the various options to do so while living as well as through estate planning means. But, what if you own or run a business and want to make charitable gifts on behalf of the business?

Donations on behalf of a business can be an excellent way to build goodwill, trust, and foster positive public relations. Plus, donations of assets like cash and property can also mean substantial benefits when it comes to filing business taxes.

The good news from the IRS (how often do you hear that?!) is that any business can make contributions to qualified charitable organizations. The caveat is that there are limits on these deductions, and the contributions may only be deductible to the individual owners, not to the business. How the business is categorized is what determines how charitable contributions are deducted and which tax return they are deducted from.

Corporations vs. Sole Proprietorship

Corporation

corporation skyscraper building

Some types of businesses, such as corporations, can deduct allowable charitable contributions directly on their business tax returns. This makes more sense when you consider that the corporation is a separate entity from the owners.

A corporation which files its own tax return can deduct charitable gifts up to 10 percent of its taxable income and is entitled to carryover unused deductions for up to five years.

For a corporation, taxable income for this purpose is calculated without the following:

  • The deduction for charitable contributions.
  • The dividends-received deduction.
  • The deduction allowed under Internal Revenue Code Section 249 [relating to deduction of bond premium on repurchase].
  • The domestic production activities deduction.
  • Any net operating loss carryback to the tax year.
  • Any capital loss carryback to the tax year.

Sole Proprietorship

man standing on street

If you are a sole proprietor, charitable donations can also be tax-savvy, but there are differences from filing as a corporation. Your business taxes are filed on Schedule C of your personal Form 1040 and because of this set-up, your business cannot make separate charitable contributions because the only way individuals can deduct these contributions is on Schedule A. Additionally, you must itemize deductions to take them.

This advice also rings true for a single-member limited liability company (LLC), since this category of business files taxes as a sole proprietor.

What qualifies as a donation?

The IRS specifies that both cash and non-cash contributions from businesses are deductible, as well as expenses related to volunteering.

Cash is self-explanatory, and non-cash donations could be property, goods, and inventory. In terms of volunteering, the time and lost wages are not deductible, but volunteer-related expenses for a qualifying charity event or service project are. This includes the travel costs (like gas and mileage) along with any donated supplies.

What does not qualify as a donation?

Say you run Corporation Smile and your employees are given time off to volunteer with the causes of their choice. Could this time volunteered be considered a charitable contribution? In short, no. As stated above, the value of time volunteered on the ground or, say, on a nonprofit’s board of directors does not qualify. Additionally, many times business-based donations are committed in exchange for something of value. Be it a product or service, the tax-deductible amount is the donation’s value minus the value of the good/service exchanged. (Read my primer on the term “quid pro quo” for more on this concept.)

Qualifying Organizations

In order to claim the charitable donation deduction, the donee organization must be recognized by the IRS as 501(c)(3) nonprofit. This important distinction is what enables these organizations to receive tax-exempt donations. Beware that gifts and donations to political candidates, parties, or associated organizations are not recognized by the IRS as tax-deductible. The same goes for donations to a specific individual. Be smart and practice due diligence in determining which organizations are qualified by asking to see a charity’s IRS determination letter and/or search for qualifying organizations by using the IRS’ Exempt Organizations Select Check tool.

two men talking in booth

Record Keeping for the Win

If you own or manage a business you know all too well how important bookkeeping is, especially come tax time. Record retention for charitable contributions is no different. What documentation required depends upon the amount and type of contributions. (Although, my general advice is to keep more paperwork than needed in regard to contributions.)

  • Donations valued at less than $250– Retain a receipt issued by the accepting charity. If for some reason you don’t have this, a credit card, bank record, or canceled check will suffice.
  • Donations valued at more than $250– Obtain an official gift receipt from the accepting nonprofit.
  • Non-cash donations valued at $250 or less– Taxpayers must receive and keep a letter or other type of written communication in the form of a gift receipt from the charitable organization showing: organization’s name, date and location of the contribution, and a reasonably detailed description of the property donated. The gift receipt for a non-cash donation may or may not include a cash value. If not, the donor will need to see that it is appropriately assessed for fair value.
  • Non-cash donations valued at greater than $250– The gift acknowledgment from the nonprofit must meet the same requirements for contributions of property valued at less than $250, but must also meet several additional requirements. The written acknowledgment must state whether the qualified organization gave any goods or services in exchange for contribution, and include a description and good-faith estimate of the value of any goods and services given.

So, to summarize, the following details should be retained:

  • Name and address of the donee organization;
  • Date and location of the contribution;
  • Reasonably detailed description of the property;
  • Fair market value (FMV) of the property at the time of the contribution and FMV was determined (if the property was appraised, the taxpayer should keep a copy of the signed appraisal);
  • Cost or basis of the property, if the taxpayer must reduce its FMV by appreciation—these records should include the amount of the reduction and how it was calculated;
  • Total amount the taxpayer is claiming as a deduction for the tax year as a result of the contribution; and
  • Terms and/or conditions attached to the contribution.
  • Non-cash donation valued at more than $500 and less than $5,000– Taxpayers must fill out IRS Form 8283 when filing taxes. Taxpayers must have the acknowledgment and written records described above, as well as additional information needed including: how the property was acquired (purchase, gift, inheritance, etc.) and the date the property was obtained by the taxpayer.
  • Non-cash donation worth more than $5,000– In addition to the requirements listed for the smaller donation amounts, you also must obtain a qualified appraisal of the goods and have the qualified appraiser sign Section B of Form 8283. (Qualified appraisal and qualified appraiser are both vague terms with specific meanings to the IRS. Read more about the specifics of these definitions here.)

woman walking against blue window

The charitable deduction for business can result in significant tax savings, just be certain you do so in the right way to maximize the savings. The nuances of corporate/business giving can be complicated and confusing and every business has a unique situation, so be sure to contact the appropriate professional advisors for specific advice. Questions? Comments? I’d love to discuss further; contact me via email or by phone (515-371-6077).

hand holding flowers

It’s the end of January and that means Tax Day is creeping closer. You tend to hear a lot about what sort activities are tax deductible. You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions. And, you’ll certainly want to be aware for substantiation purposes what contributions are indeed deductible.

But, in conquering your charitable giving goals, it’s just as important to know which nonprofit organizations are NOT qualified beneficiaries for tax-reducing gifts. Additionally, not all gifts to qualified charities are eligible. Contributions to certain entities may appear to be tax-deductible, but in actuality are not. This is not to say that these contributions are not valuable and helpful to the respective donees, it’s just that the U.S. government isn’t going to give you a tax break.

Knowing what you can and can’t claim helps you maximize the potential tax savings that the charitable tax deduction offers.

Contributions made to the following are NOT considered viable for the charitable deduction:

Promises and Pledges

man on computer in blue room

Let’s say you made a charitable pledge to a local 501(c)(3) for $150, but only paid $50 in donation during the tax year of the respective tax return. You can only deduct the the $50 actually donated. Once you make the transfer of the rest of the pledge ($100) then you could deduct that from the appropriate tax year.

Political parties, campaigns, and action committees

It’s important to get involved in the process fo democracy, but joining politic through monetary support does not translate into a charitable donation. Funds given to political candidates, parties, and PACs cannot be claimed. This also includes money spent to host or attend fundraising events or advertising.

boy skateboarding with American flag cape

Fundraising tickets

I’m sure you cannot count all the times you’ve been asked to purchase raffle tickets, bingo cards, lottery-based drawings and the like. It’s a common fundraising tactic, but such costs are not deductible.

Personal benefit gifts

The IRS considers a charitable contribution to be one-sided. This means if you receive something in reciprocity for a donation—anything from a tote bag, to a plant, to a three-course dinner—only the amount in excess of the fair market value of the item/service received is deductible. Let’s say your little neighbor is selling popcorn to raise money for their scouting troop. You buy some popcorn from the kid for $10 and the retail value of such a popcorn tin is $6. This donation would translate into a $6 charitable deduction. Likewise, you purchase a $75 ticket to an annual event hosted by a qualified charity. The event includes a meal that would have cost you $30 at a restaurant; overall your charitable deduction would be $45. (Read more about quid pro quo donations here.)

Receipt-less donations

You’ve probably given more than you can write off from small cash donations to your church’s collection plate, the Salvation Army holiday bell ringer, and charity bake sales. Why cannot you just guesstimate, add this all up, and deduct the amount off of your taxes? Receipts. The IRS requires proof of all cash donations big and small; a canceled check, statement or receipt from the recipient organization can suffice for cash donations up to a $250 (in total), and then more substantiation is demanded.

Person-to-Person

I’ve seen many successful crowdfunding campaigns for individuals raising money for a multitude of things. Let’s say your cousin is raising money for an expensive medical procedure through an online site and you donate to help them reach their goal. Or, maybe your nephew is raising money to take a mission trip this summer. Unfortunately and contributions earmarked for a certain individual (despite the economic/medical/educational need) are not deductible, according to IRS Publication 526. However, if you were to make a contribution to a qualified organization that in turn helped your cousin or nephew out with a grant or scholarship, for example, the contribution would be deductible. Make note though, even if you were to give a contribution to a charity in order to help a specific individual, you cannot designate the money to one specific individual for the gift to. Basically the contribution cannot be given directly or indirectly to a specific individual and still be tax deductible.

two people talking

The list could go on for contributions that are not deductible, but some other notable inclusions to be aware of include:

  • For-profit schools (nonprofit schools are good to go so long as donations are not made to benefit a specific individual)
  • For-profit hospitals (nonprofit hospitals are A-OK)
  • Foreign governments
  • Foreign-based nonprofits (with some exclusions for specific nation-states)
  • Fines or penalties paid to local or state governments
  • Value of your time for services volunteered to a charity
  • Value of blood donations (you just need to do that one out of the goodness of your heart…literally)
  • Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups
  • College tuition (Even if the school is a nonprofit, tuition to attend the school is NOT tax deductible as a charitable contribution)
  • Professional groups/associations (such as civil leagues)

This may make it seem like there are many exceptions to the charitable deduction rule, however there are still an innumerable number of qualified nonprofit organizations that are a good way of reducing taxes (remember, you have to itemize) while also helping others. If you have questions about the charitable contribution tax deduction it’s a good idea to consult with your professional advisors. It’s also a good idea to heed these tips prior to making a charitable donation and double-check the organization’s status on the IRS’ Exempt Organizations Select Check tool, which allows users to search a list of organizations eligible to receive tax-deductible charitable contributions.

I would be happy to have a conversation regarding the tax code, the best time and way to maximize a charitable donation, and help ensure you’re in compliance in compliance with all state and federal laws. Contact me at via email or by cell phone (515-371-6077). 

wall street sign

A less-than-obvious, but ideal asset for charitable giving is appreciated, long-term, publicly traded stock. The merits of this giving tool are numerous, but there are some questions I hear from donors considering this options. For instance, when do you assess the value of a stock donation—before the donation, during, or after? And, how do you determine a specific dollar value on an asset that’s perpetually fluctuating?

Simple Stock Equation

math equation on chalk board

Forget stock charts or complicated formulas, there’s a simple solution. The value of a gift of publicly traded stock is the mean average of the high and low prices on the date of the gift.

For example, Jill Donor gifted 100 shares of Twitter stock to her favorite charity. On the date of Donor’s gift, the high was $25 per share and the low was $23 per share. In this case, the value of a share for charitable deduction purposes would be $23.50 ($25 + $22 divided by 2). The charitable deduction value of Donor’s gift would be $2,350 ($23.50 per share x 100 shares).

Any subsequent sales price, or current valuation (if the charity retains the stock), is irrelevant for valuing publicly traded stock and determining a donor’s charitable deduction. Again, only one factor matters: the average of the high and low selling price of the stock on the date of the gift! Of course, this equation doesn’t account for changes in the stock market in terms of what day would be better to donate over another. For that you’ll need to talk to your financial professional advisor or watch the trends to donate on a date with preferred value.


If you’re interested in gifting stock to a qualified charity, ensure you’re doing so in a way that maximizes all of your financial benefits and contact me for a free consult. Or, if you’re a nonprofit leader wanting to accept gifts of stocks but are unsure of how to facilitate, don’t hesitate to reach out via email or phone (515-371-6077).

wealthy dollar bills

There is a rumor that has been floating around that only the rich need estate planning. That is extremely false. Everyone needs an estate plan, but the wealthy don’t need estate planning as much as the middle-class and working-class folks. If this contradicts everything you’ve ever thought about estate planning allow me to explain.

The Case of Kingston Lear

Suppose Kingston Lear (get it?!), a wealthy Iowan, decides he doesn’t need a qualified and experienced estate planner, he can do it himself, or use an online, one-size-fits-all service. Hey, Lear figures, this way he’s saving both time and money. Also, nothing is going to happen to him for a while, he can get around to doing a proper estate plan with a proper estate planning professional “someday.”

Of course, “someday” never comes, but Lear’s death does. His three daughters are aghast that Lear has no real estate plan. The template resembling an estate plan is completely inadequate for the size and complexity of Lear’s assets.

A Matter of Trusts

Lear could have easily, with the help of a professional advisor, set up a trust (even a plain, “vanilla” revocable living trust would have worked) to avoid probate. But, the online service he used didn’t even explain the difference between wills and trusts. So, Lear’s assets all must go through probate. This means that the time and money Lear though he was saving is gone in a flash.

Probate Costs and Fees, If You Please

Probate fees are going to equate to at least 2% cut of Lear’s estate. Remember, Lear’s estate is large and complex and valued at $10 million, so the actual figure is probably going to be more like four percent.

Using 4% as the figure for probate fees means a loss of $40,000 ($10 million X .04 = $400,000). This is $400,000 that could have been passed down to his daughters through a trust, or split generously between his heirs and charitable organizations near and dear to Lear’s heart.

Also, court costs may amount to another 1%, or loss of $10,000 more ($10 million X .01 = $100,000).

Loss of Privacy

Another major benefit of a trust—again, not explained to Lear because didn’t seek any individualized advice—is privacy. A will (or most any document that goes through probate, absent very special circumstances) is simply a public document. Anyone can read, copy, share, and write about it.

Consider one of Lear’s major assets was an ongoing business—a Shakespearean-themed jousting complex, where families could have fun practicing jousting.

horses at fence

Unfortunately, in some of the probate papers, it was disclosed that there had been numerous complaints by the Iowa Horse Association about the treatment of horses. It isn’t long until this hits the blogs, and some of the more sensational aspects of the report (though hotly disputed) goes viral. The jousting park which had been quite profitable, is now eschewed by all the good people of the area. The daughters are forced to sell the business asset to preserve the family’s good name (or what’s left of it) and sell at a loss. While the jousting park had been worth as much as $1 million, the daughters have to sell, so there’s a “paper loss,” but nonetheless less a loss, of another $900,000.

Loss of Future Profits

The $900,000 is a conservative figure; it doesn’t include lost future profits. If not for the scandal becoming public, who knows how long the jousting park could have remained really popular and this profitable. Years? Decades? It’s quite difficult to quantify, but it’s certainly probable that there are some lost profits. The question is: how much?

Costs of Cases

Because Lear’s will wasn’t drafted by professional, there are many ambiguities and loopholes. It’s not long before the three daughters begin fighting and, with unclear direction from their father, they wind up suing each other.

Taking a court case all the way to trial can easily mean $50,000 in attorney’s fees, plus each daughter will want and need her own attorney. So, another $150,000 is lost to attorney’s fees!

Total Losses Equal?

Lear could have had his estate plan done by an Iowa professional for a few thousand dollars. Instead, he lost a total far greater than that:

  • Probate Fees: $400,000
  • Probate Court Costs: $100,000
  • Loss on Sale of Jousting Park: $900,000
  • Loss of Future Profits of Jousting Park: Incalculable?
  • Attorney’s Fees for Daughters’ Litigation $150,000

This is a hit for the inheritance of $1.55 million, leaving $8.5 million (rounded up), or a little less than $3 million per daughter. But you know what? That still leaves an inheritance of $8.5 million to be split amongst three sisters.

The Rich Can Afford Bad Estate Planning

crown - silver

Lear acted unwisely, arguably recklessly! A great deal of his money was wasted that could have been used for great charitable work in Iowa through local nonprofit organizations. But, for all his foolishness, Lear’s daughters still end up with $3 million each. Will the daughters incur much suffering with “only” $3 million? No.

That the rub; the rich can afford to make big (and small) estate planning mistakes.

You Can’t Afford Bad Estate Planning

Let’s look at this from a normal Iowan perspective. At least 2% in probate costs and fees, a huge drop in value in a key asset, attorney’s fees for litigation…can a middle-class estate merely shrug these kinds of losses off? Not a chance.

The rich aren’t like you and me. They can badly botch estate planning. You and I can’t afford to make mistakes with our estates; there’s not room (and not enough money!) for error.

Need an estate plan but aren’t sure where to start? It’s easy from start to finish. Fill out my obligation-free Estate Plan Questionnaire or contact me.

I KEEP six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.– Rudyard Kipling

I’ll use all six “serving men”—what, why, when, how, where, and who, albeit sometimes in slightly different order—to explain three broad topics: (1) estate planning; (2) trusts; and (3) business succession planning. If you’re unsure of any of the three topics listed, this is the blog post for you.

man taking notes in notebook

WHAT is an Estate Plan, Anyway?

What do we talk about when we talk about estate planning? There are six documents that should be part of everyone’s estate plan. Additionally, you should also keep these six documents updated and current. It’s also important you take note of assets with beneficiary designations (such as those on IRAs and bank accounts).

WHO Needs an Estate Plan? Everyone!

Everyone needs an estate plan. If you’re young, healthy, unmarried, have no children, and have no significant or unusual assets, perhaps you could talk me into the idea that you don’t entirely need an estate plan. Even in such exceedingly rare cases, I strongly recommend making sure your beneficiary designations are completed and up-to-date.

For example, beneficiary designations can be found on your checking and savings accounts and on your retirement benefit plan. But, if you’re married, and/or have kids, and/or have significant or unusual assets, and/or own part or all of a business, you most definitely need an estate plan.

WHY Do You Need an Estate Plan?

Estate planning is not exactly material for scintillating conversation. In fact, I’d bet most of us like to avoid this topic because it can be confusing, and requires lots of decision-making. And, yes, it forces one to think about the mortality of loved ones and the self. Estate planning, after all, is a roadmap about what you want to happen after you move on from this life. While it may not be a fun topic, it is indeed a necessary one. If you die without an estate plan, there are several negative consequences.

Without an estate plan, you cannot choose who receives your estate assets.

If you die without a will, you leave the decision of who will receive your property, in what amount, and when up to the Iowa legislature and/or Iowa courts. With this situation there is always the very real possibility that the distribution of your estate will be greatly different than if you had chosen it through an estate plan.

Without an estate plan, you cannot choose a guardian for your minor children.

If you die without an estate plan, Iowa courts will choose guardians for your children. One of the most important aspects of a will is that it allows you to designate who will be the guardian for your children. This can ensure that your children are cared for by the person that you want, not who the court chooses for you.

Without an estate plan, Iowa courts will choose your estate’s executor.

If you die without an estate plan, the probate court is forced to name an executor. The executor of your estate handles tasks like paying your creditors and distributing the rest of your assets to your heirs. If the probate court has to pick who will be your estate’s executor, there is always a chance that you would not have approved of that person if you had been alive. If you have an estate plan, your will names a trusted executor who will carry out all of your final wishes, pay your bills, and distribute your assets as you intended.

Without an estate plan, you can’t help your favorite nonprofits.

If you die without an estate plan, all your assets— house, savings, retirement plans, and so on—will pass to your heirs at law as specified under Iowa’s statutes. If you have an estate plan, you can include gifts to your favorite nonprofits and see that they are helped for many years to come.

HOW Do You Structure Your Estate Plan?

light bulb on post-it note

Again, there are six basic documents that should be part of everyone’s estate plan:

  1. Estate Planning Questionnaire
  2. Last will and testament
  3. Power of attorney for health care
  4. Power of attorney for finance
  5. Disposition of personal property
  6. Disposition of final remains

We’ll go through each document briefly, so you have a sense of what each entails.

Estate Planning Questionnaire

Estate planning involves facing heavy questions, and depending on the amount of assets and beneficiaries you have, may take quite a bit of time and thought. I recommend clients (and even those who aren’t my clients) complete an Estate Plan Questionnaire. An Estate Plan Questionnaire is a simple way to get all of your information in one place, and makes it easier for your attorney to build your estate plan.

As with any project, it helps “to begin with the end in mind.” A questionnaire can help get you there.

hand holding orb

Last Will and Testament

Now let’s discuss your last will and testament. In sum, you’ll be answering three major questions:

Q1. Who do you want to have your stuff?

This includes both tangible and intangible things. An example of a tangible item would be your coin collection. An example of an intangible asset would be stocks.

Q2. Who do you want to be in charge of carrying out your wishes as expressed in the will?

The “executor” is the person who will be responsible for making sure the will is carried out as written.

Q.3. If you have kids under age 18: who do you want to take care of your minor children?

You’ll want to designate a legal guardian(s) who will take care of your minor children until they are adults.

Power of Attorney for Health Care

A power of attorney (POA) for health care designates someone to handle your healthcare decisions for you if you become unable to make those decisions for yourself. A healthcare POA can govern any kind of decision that is related to your health that you want to address. A healthcare POA may include decisions related to organ donation, hospitalization, treatment in a nursing home, home health care, psychiatric treatment, and more.

For example, if you don’t want to be kept alive with machines, you can make this clear in your POA for healthcare. But, keep in mind your POA for health care isn’t just about end-of-life decisions, again, it can cover any medical situation.

Power of Attorney for Finance

The power of attorney for financial matters is similar to the health care document just discussed, only your designated agent has the power to make decisions and act on your behalf when it comes to your finances. This gives them the authority to pay bills, settle debts, sell property, or anything else that needs to be done if you become incapacitated and unable to do this yourself.

It might be obvious by now, but I’ll state it just in case: choosing an agent for a power of attorney requires that you think long and hard about who would be best suited for the job and who can be trusted.

woman on laptop on patio

Disposition of Personal Property

Now, let’s get to the disposition of the personal property. This is where you get specific about items you want particular people to have. If you’re leaving everything to one or two people, then you may not need to fill this out. But, if you know you want your niece Beth to have a specific piece of jewelry, and your cousin Karl to have that bookshelf he loved, then you’d say so in this document.

Disposition of Final Remains

The disposition of final remains document is where you get to tell your loved ones exactly how you want your body to be treated after you pass away. It can be as general as simply saying “I want to be cremated and scattered in my garden,” or it can be specific and include details of plots you’ve already purchased or arrangements you’ve already made.

Beneficiary Designations

Along with the six basic estate planning documents, don’t forget about your assets with beneficiary designations.

Common accounts with beneficiary designations include savings and checking accounts, life insurance, annuities, 401(k)s, pensions, and IRAs are all transferred via beneficiary designations. These beneficiary designations actually trump your will!

Regarding assets with beneficiary designations, you must make sure that designations are correctly filled out and supplied to appropriate institution. Remember to keep these beneficiary designations updated and current.

WHEN Do You Update Your Estate Plan?

Let’s say you’ve gone to an estate planning lawyer, and these six basic estate planning documents have been drafted and signed. What else? You need to keep these documents updated and current. If you undergo a major life event, you may well want to revisit with your estate planning lawyer, to see if this life event requires changing your estate planning documents.

What do I mean by a major life event? Some common events would include:

  • Selling or buying land
  • Birth or adoption of a child or grandchild
  • Marriage or divorce
  • Illness or disability of your spouse
  • Purchasing a home or other large asset
  • Moving to another state
  • Large increases or decreases in the value of assets, such as investments
  • If you or your spouse receives a large inheritance or gift
  • If any family member, or other heir, dies, becomes ill, or is incapacitated

This is just a short list of life events that should cause you to reconsider your estate plan. There are many others; if you think you might have undergone a major life event, check with your estate planning lawyer.

WHERE Do You Keep Your Estate Plan?

You should store your estate planning documents in a safe place, such as a fireproof safe at home, or a safety-deposit box. Another option in our digital era is storage on the “cloud.” Just make sure the important agents under your estate plan—say, for example, the executor of your will, or power of attorney representative—can access the documents if and when the need arises. For most folks, that’s enough: the six documents, keeping the documents current, and remembering about those assets with beneficiary designations.

Wait a second…what do you mean by “for most folks, that’s enough?” Indeed, for most Iowans what I’ve outlined here is enough. There may be folks who have more that $5 million in assets, or who have complex assets (for example, more than one piece of real estate), or own part or all of a robust business, or otherwise have unusual situations. In such cases, a trust may be helpful. That’s considered more “advanced” estate planning and will mean additional conversations and collaboration on what estate planning tools work best for the situation.

See? That wasn’t so bad!

Whether it’s complicated or simple, it does require some thought and time. But, it’s worth the investment. A proper estate plan can save you and your estate costs and fees, help your family and friends, and provide you peace of mind.

Perhaps most importantly, through proper estate planning you can help your favorite charities in ways large and small.

Do you have an estate plan? Why or why not? I’d love to hear from you in the comments below. You can reach me at any time at 515-371-6077 or gordon@gordonfischerlawfirm.com.

Everyone has unique needs and thus every estate plan needs to be personalized. Online templates for estate plans won’t cover the nuances of your life, wishes, and assets. The best place to start on your personalized estate plan is with my Estate Planning Questionnaire.

Marting Luther King Jr. and American Flag

Today, on Martin Luther King Jr. Day (and the famous civil rights leader’s birthday), I think it’s important to pay tribute to a man who truly championed ideals of equity, freedom, peace, and justice. Among his many accomplishments, Dr. King tirelessly pushed for nonviolent activism and peaceful resolution to human rights issues. He reportedly wrote five books and gave hundreds of speeches in a single year…more than most of us could produce in a lifetime. And, there’s no doubt that he was a key player and influencer in the passage of the U.S. Civil Rights Act of 1964. Dr. King was subsequently was awarded one of the highest honors in the world in 1964—the Nobel Peace Prize—for “his dynamic leadership of the Civil Rights movement and steadfast commitment to achieving racial justice through nonviolent action.” (He donated the prize money, $54,123, back to the civil rights movement.)

Dr. King and his lasting legacy can undoubtedly serve as an inspiration to us all. I see his dream of a better world—a better future for all—exemplified in action by the hardworking Iowa-based nonprofit organizations. I also see his lessons being practiced by the wonderful donors who support these organizations and advance their missions.

So, yes, it’s nice to have a day off of work, but make certain the day doesn’t pass you by without setting a plan in place to perform some form of service for others. Dr. King tirelessly pursued the advancement of human rights for the greater good and we can honor him by practicing forms of charitable giving as a way to advance the greater good for our communities. Be it through volunteering time to an organization that speaks to your heart (remember, certain costs associated with volunteer can be tax deductible), setting up a donor advised fund, or simply writing a list of the nonprofits you would like to include as beneficiaries in your will, you too can set out on an honorable service-oriented path and inspire your friends, family, and colleagues to follow suit.

MLK Day Quote

Dr. King’s lessons resonate with our hearts and heads because we too have dreams of making our corners of the world a better place to learn, live, and grow through service. Maybe Dr. King’s commitment to “practice what you preach” mentality has inspired you this year to give charitably more and more often. Maybe you considered his question, “What’s your life’s blueprint?” and decided to form the charity you’ve wanted to establish for a long time. Either way, don’t hesitate to contact me for a free consult. As Dr. King said: “The time is always right to do what is right.”