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Charitable Giving

July 14, 2023



You probably know that you can get an income tax deduction for a gift to a charity if you itemize your deductions. But there is a lot more to charitable giving. For example, you may be able to give appreciated property to a charity without being taxed on the appreciation. Or charitable giving may be part of your overall estate planning. These benefits can be achieved, though, only if you meet various requirements including substantiation requirements, percentage limitations and other restrictions. We would like to take the opportunity to introduce you to some of these requirements and tax saving techniques.

First, your charitable contributions can help minimize your tax bill only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes.

Itemizers

Under the 2017 Tax Cuts and Jobs Act, the percentage limitation on the charitable deduction contribution base has increased from 50 percent to 60 percent of an individual’s adjusted gross income for cash donations to public charities in 2018 through 2025. There is an even greater benefit, because in addition, the phase-out of allowable itemized deductions is repealed for tax years 2018 through 2025.

Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30 percent of adjusted gross income.


A special rule applies to the deductibility of charity of long-term capital gain property. Property is capital gain property if you would recognize long-term capital gain with sales at fair market value (“FMV”) on the date of the contribution. When figuring your deduction for a contribution of capital gain property, you can generally use the FMV of the property. However, in certain situations, you must reduce the FMV by any amount that would be long-term capital gain if sold the property for its FMV. Generally, this means reducing the FMV to the property's cost or other basis.


Each year, taxpayers over 70 ½ years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $100,000 (if both spouses are age 70½ or over and both have IRAs a total of up to $200,000 per year).

A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions (RMD) from a traditional IRA. The qualified charitable contribution option is available regardless of whether an eligible IRA owner itemizes deductions on Schedule A.

Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. Your donations must be substantiated. Generally, a bank record or written communication from the charity indicating its name of the qualified organization, the date of the contribution and the amount of the contribution is adequate. If these records are not kept for each donation made, no deduction is allowed. Remember, these rules apply no matter how small the donation is.

However, there are stricter requirements for donations of $250 or more and for donations of cars, trucks, boats, and aircraft. You can claim a deduction for a contribution of $250 or more only if you have a contemporaneous written acknowledgement of your contribution from the qualified organization. Additionally, appraisals are required for gifts of property other than cash of $5,000 or more. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible. However, you can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it, and include a qualified appraisal prepared by a qualified appraiser and a completed Form 8283, Section B.



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