Try to think of what the world would be like without generous people. I can’t imagine a world without the great health care systems, colleges and churches. It’s almost like what Clarence the Angel describes to the protagonist George Bailey in the movie, It’s a Wonderful Life when he draws a picture of what the world would be like if George had not been born. I find it easy to say that without generous giving, it would be a very dark world. If you are a generous giver, I thank you for being that, if you are not a generous giver yet, I encourage you to aspire to be one someday. Generosity creates a more civil society.
One thing that has been a constant in our nation for more than a century is the U.S. Tax Code. Charitable contributions have been deductible for most of that time due to the important role that charities and churches play in the civil society. Nevertheless, charitable contributions can be abused by some so the IRS had to put some guidelines in to keep the tax cheaters on their heels. If you are a charitable giver, here are some things to remember when giving:
Remember to audit-proof your documentation. According to the IRS, no deduction will be allowed for contributions of cash, checks, or other monetary gifts of less than $250 without a cancelled check or bank evidence; or a written receipt from the public charity. Contributions of $250 or more require a contemporaneous written acknowledgement from the donee organization. For noncash donations that exceed $500, the taxpayer must have written acknowledgement plus a written description and the adjusted basis of the property reported on form 8283. If the value of the property exceeds $5,000, then an appraisal must be obtained. If the value of the donated property is greater than $500,000, the appraisal is attached to the taxpayer’s return. Be aware that there are additional special rules for donated vehicles.
Remember the small donations. A charitable deduction may be claimed for unreimbursed amounts spent to maintain a full-time elementary or high school student, who is not a dependent or relative, in your home pursuant to a written agreement with a charity that provides educational opportunities for students. The deduction is limited to actual costs up to $50 per month. Also, the IRS allows mileage at a rate of 14 cents per mile plus parking and tolls if driven for charitable purposes.
Remember that gifting appreciated capital gain property has some nice benefits.A potential taxable event can be turned into a deduction by donating a gain position security to a qualifying organization. The security needs to be delivered to the qualifying organization unsold and the donor deducts the fair value at the gift date on his tax return.This move works well to avoid capital gain tax and serves to reduce income tax simultaneously.
Remember to check-in with your tax adviser if your gifts are large and could be subject to limitations.Charitable gifts to public charities are deductible to the extent that individuals claim them on Schedule A of Form 1040. The Tax Cuts and Jobs Act raised the limitation to a 60 percent maximum limitation of adjusted gross income imposed by the Internal Revenue Code. Gifts of capital gain property to public charities are limited to 30 percent of AGI.
Remember about giving all or a part of an Individual Retirement Account to an organization. An individual 70½ or older may distribute up to $100,000 tax-free from their IRA to certain charitable organizations regardless of the AGI limitation. This is also helpful to those who, starting in 2018, no longer itemize their deductions due to the loss of state tax deductions and the increased standard deduction to $24,000 per year for a married couple. The donation must go straight from the IRA custodian to the charity without passing through your hands.
Remember to maintain your generosity in the afterlife. Although it’s not deductible on your income tax, you can give money through your will or trust. It is common for people leave larger amounts as either fixed or a percentage of their wealth to charitable organizations. If you are wealthy, you will be able to reduce the amount of estate tax your heirs will be required to pay should you die.
Lastly, remember that knowing the rules can reduce your stress at tax time and can stretch the money that you give to your favorite cause. I look at charitable giving as one of several big reasons that we all work as hard and as diligent as we do. My hope is that one doesn’t give just for tax purposes but so that our world would be a better place because of our generosity.