Tis the season for charitable giving.
First, in order to claim a deduction for a contribution to a qualified charitable organization, a taxpayer must itemize deductions. Second, the contribution must be a contribution of money or property made to a qualified organization. Third, the contribution must be paid before the close of the tax year in order to be deductible.
The 2018 increase in standard tax deductions ($12,000 for an individual/married filing separately, $18,000 for a head of household, and $24,000 for married filing jointly) is expected to significantly increase the number of individual taxpayers claiming a standard deduction in place of itemizing. In plain terms, this means that fewer taxpayers are likely to receive any tax benefit from making a charitable donation.
Nonetheless, taxpayers may benefit from “bunching” regular contributions into a single tax year. Consider whether it is possible to take the contributions which would ordinarily be made over multiple years by paying the complete contribution in a single tax year.
Additionally, taxpayers aged 70.5 years and up who are required to take Minimum Required Distributions from Individual Retirement Accounts (“IRA’s”) can transfer charitable contributions to qualified charities directly from the IRA. By directing the contribution to be made directly to the charity, the taxpayer preserves the standard deduction while excluding the contribution from taxable income. In effect, the taxpayer is able to receive the benefit of an itemized deduction while still taking the standard deduction.
Qualified organizations under Section 170 of the Internal Revenue Code include churches, other religious organizations, many educational organizations, many charities for the poor and disadvantaged, U.S. governmental entities, and many more. For a complete list of recognized charities, go to IRS.gov/EO/SelectCheck. You may not deduct contributions to a specific individual or individuals, even if those individuals are in need of assistance.
The term “money or property” includes cash, liquid assets, investment assets, and any other property with a monetary value. You may not deduct the value of your time or services.
For contributions of property, the amount of the contribution is generally the fair market value of the property, subject to a number of exceptions. Donors are responsible for obtaining a contemporaneous written acknowledgment from the donee for any single contribution of $250 or more. Special rules exist regarding the donation of boats, airplanes, or automobiles.
Gifts of appreciated assets, such as stock shares made directly to a qualified charity, generally avoid capital gain recognition and provide an income tax deduction.
The maximum amount of charitable deduction that may be taken in any given year depends upon your income for such year, the type of charitable contributions made, and the type of qualified organization receiving the contribution.
For further information, please call Elizabeth Brickfield in the Las Vegas, Nevada office at (702) 550-4464.