As we approach the end of 2018, you might be thinking about making gifts to charities that support causes important to you.
The contributions might be for philanthropic purposes or for tax deductibility.
Here are some charitable strategies you might consider for your own situation.
Cash donations are easy to make and are usually fully deductible. A receipt or record is required for EVERY donation. Contemporaneous written acknowledgment, or a donor acknowledgment letter from the charity is required if it’s over $250.
Instead of making all of your contributions at the end of the year, think about changing that pattern to donations during non-traditional time such as spring or summer. You can also enroll in automatic monthly or quarterly payments to the charitable institution.
TANGIBLE PERSONAL PROPERTY
If the property is related to the mission of the charity such as old clothes donated to the Salvation Army, it’s usually fully deductible based on the thrift shop value.
If you are donating a car, the IRS requires you to calculate your deduction in one of two ways, depending on how the charity uses your donation. Deductions for cars the charity sells are limited to the sales price. In all other cases, you can use the car’s fair market value.
Donations of non-cash items worth $5,000 or more require a professional appraisal.
OPEN A DONOR-ADVISED FUND
If you are interested in helping a number of charities in the future and want a big deduction this year, consider starting a donor-advised fund (DAF). This is an account dedicated to holding charitable dollars until they are distributed.
The total charitable deduction is immediately deductible even if you delay making grants to charities to future years.
Besides cash, you can also contribute appreciated investments held for more than one year, receive a current deduction and avoid paying capital gains on the sale of the assets contributed. See last week’s article for more information on this topic.
The DAF can be invested to grow and you can make the grants to the charities in future years.
To find out more about DAFs, contact your local community foundation.
STACK OR BUNCH CONTRIBUTIONS IN ONE YEAR
With the current tax law, it is still possible to make donations and receive a tax benefit.
The new standard deduction is $24,000 for a married couple or $12,000 for a single person. If your deductions are near those amounts, consider doubling or tripling your charitable contributions in one year. This would be stacking or bunching the donations. The following year you could use the standard deduction and not make any contributions.
Contributing to a DAF in a year that you are maximizing your contributions would be one option.
IRA REQUIRED MINIMUM DISTRIBUTION (RMD)
If you are older than 70½ you can transfer up to $100,000 a year from your IRAs to charities, and have it count toward your RMD. The amount of the RMD in this case will not be added to your adjusted gross income.
DONATE A FULLY PAID UP LIFE INSURANCE POLICY
The donor can take a charitable deduction for the gift at roughly the amount of the cash value in the policy. The charity can access the cash value immediately and may have other choices available to them.
You cannot receive a deduction for the time you spend volunteering for a charitable organization. However, you can deduct transportation costs and other expenses related to volunteering.
CAUTION: Before you make any contributions, make sure the organization is a recognized charity and has a 501(c)(3) designation from the IRS.
You will also want to do research to determine how much of the contribution will go to the organization’s mission and how much pays for overhead and fundraising.
In most cases, you can only take a deduction for a contribution in the year you make it. That means you must complete it by Dec. 31 of that year.
Finally, the contribution strategies mentioned above may offer different benefits, including flexibility, tax deductions, administrative costs, and account minimums. Consult with your CPA, tax preparer, or financial advisor about your particular situation.
By MARCIA CAMPBELL | Contributing columnist with THE PRESS ENTERPRISE
PUBLISHED: December 1, 2018
Marcia L. Campbell, has worked as a CPA for over 25 years specializing in seniors, trusts, estates, court accountings and probate litigation support. You can reach her at Marcia@MCampbellCPA.com