Provided by Kay Phillips, CPA;
Cordell, Neher & Company, Wenatchee Certified Public Accountant
The end of the year will be here soon. It is now time to start thinking about the year-end charitable contributions made during the holiday season.
Although we make charitable contributions for many reasons, it is never a bad idea to consider the tax benefits in your planning.
Last fall we saw sweeping tax changes, which dramatically affects individual tax returns. The good news is the deduction for a charitable contribution is still intact.
For the contribution to be tax deductible it must be made to a 501(c)(3) organization – a public charity. A contribution made to an individual or a family is not tax deductible. In most cases, a contribution to a crowdsourcing campaign created by an individual or group lacking the 501(c)(3) designation is not deductible.
Many charitable organizations also accept non-cash donations. In addition to the normal trips to a charity with household goods, a non-cash contribution of appreciated property can be an excellent tax planning strategy.
For instance, if you are in a higher income tax bracket, selling securities you have owned for more than a year may lead to capital gains taxes. Instead of selling the securities, paying the tax and donating the cash to the charity, you might consider transferring the securities directly to the charitable organization. The charity then sells the securities and receives the full value of the contribution not the after-tax value. The contributor will receive a deduction for the full value of the stock and avoid paying tax on the appreciation.
You may also consider making a gift from your traditional Individual Retirement Account. At the age of 70 ½, individuals are required to start taking taxable minimum distributions. The distribution, if directed to a qualifying charity, would not be included in your taxable income. This is referred to as a qualified charitable distribution (“QCD”). The annual limit for a QCD is a maximum of $100,000 for single or $200,000 for a married couple. The contribution can consist of RMD as well as additional distributions and you don’t have to be 70 ½ to be eligible for a QCD. A QCD doesn’t qualify if the donation is to a donor-advised fund.
Thoughtful estate planning may also help your gifts go further. There are specific opportunities allowing you to give away an asset while retaining a lifetime interest. You could support a charity with a gift of life insurance or you could leave appreciated property or cash to an organization within your Will. Using taxable assets for your end of life charitable giving can be a powerful planning tool.
You may consider contributing a vehicle or boat to a charitable organization. This can be worthwhile, but you will probably not get fair market value for the donation. A deduction is allowed for the sales price of the vehicle or boat. These assets typically sell for less than fair market value, which limits your tax deduction. You may choose to sell the vehicle or boat yourself and contribute the cash.
In order to receive benefit on your individual tax return for many of the strategies mentioned above, you must itemize your deductions reaching or exceeding the standard deduction ($12,000 single, $24,000 married). In this case, your charitable contributions will reduce your yearend tax bill. You may consider consolidating two years of giving into one year in order to reach that amount. For instance, make your planned contributions for 2018 and 2019 all in 2018. This may increase your itemized deductions to the point that you will receive a tax benefit from the contribution.
You may consider giving a personal gift to an individual. These gifts fall outside of federal income tax. The gifts are neither a deduction by the giver nor are they included in the income of the receiver. In 2018, any taxpayer may gift up to $15,000 in cash to as many individuals as desired. You may also make individual gifts through 529 education savings plans.