2016 Charitable Giving Guidelines
Author: Jim Gustafson
As the year draws to a close, taxpayers look to provide support through charitable giving and are interested in the tax benefits of those contributions. However, there are issues surrounding tax-deductible charitable contributions.
Establishing the contribution value is frequently the most subjective aspect of charitable giving. These are valuation methods of more common types of contributions:
- Cash contributions, including those electronically made, are valued at the figure on the supporting bank record or written acknowledgment. Cash contributions without a supporting bank record or written acknowledgment are considered to have zero value for tax purposes.
- Publicly traded stock contributions are valued using the high-low method (taking the average of the high and low price) on the contribution date.
- Mutual fund contributions are valued using the closing price on the contribution date.
- Previously used clothing and household goods contributions are valued at fair market value (FMV), often referred to as “thrift shop value,” as they provide a market establishing comparable prices of used items. Frequently, organizations that accept such donations have thrift shop value reference guides to determine the donated item’s value. Contributions of used goods must be in “good used condition or better” to be deductible.
- Contributions made by a partnership or S corporation on your behalf already were substantiated by the company issuing the Schedule K-1. The value listed on the Schedule K-1 is the value of the contribution by the partner or shareholder.
- Vehicle, boat and airplane contribution values can vary based on the ways the receiving organization uses the item. Securing Form 1098-C from the receiving organization is vital when documenting the FMV of a donated vehicle, boat or airplane.
- Real estate contributions are valued at the FMV provided in a qualified appraisal. Qualified appraisals are made by an expert in the field within 60 days prior to the contribution that meet certain IRS requirements. Consult your tax advisor for questions regarding the qualified appraisal and appraiser requirements before making the contribution.
- Paintings, art, jewelry, gems and collectible contributions are valued at FMV and frequently require a qualified appraisal due to the gift’s size.
Ensuring your charitable giving is deductible in the current tax year often is an important component of tax planning. Depending on the type of property contributed and the delivery method, a gift contributed near year-end may be considered to be donated in the following year and not the current year. Remember these deadlines when making charitable gifts near year-end:
- Cash via check is considered contributed on the date of check mailing or hand delivery. The date the check is cashed or acknowledged is irrelevant if mailed by December 31.
- Cash via credit card is considered contributed on the date of the credit card charge. Credit cards are excellent vehicles for last-minute giving, as the charge date is the contribution date, not the ultimate payment date of the credit card statement.
- Securities—including stocks, bonds and mutual funds—when transferred through your broker, are considered contributed on the date the charitable organization is shown as the security’s owner. Depending on the transfer process, there can be delays (sometimes considerable) between the date a transfer is authorized and the date the charitable organization receives ownership.
- Tangible property—clothing, household goods, collectibles and real estate—is considered contributed on the date ownership has unconditionally transferred to the charitable organization.
Special Note: Most investment custodians have a year-end deadline for securities transfers to ensure the transfer of securities settles before year-end. Consult your investment professional to ensure your gift of securities is transferred and received by the charitable organization in a timely manner.
Net Amount Deductible & Personal Benefits Received
While many charitable gifts are distinct gifts, others are part of larger transactions containing both a charitable and personal benefit component. The gross value contributed has to be reduced by the FMV of the benefits received. Gross value contributed, less the FMV of benefits received equals net value contributed.
- Often, the FMV of benefits received is stated by the charitable organization or is reasonably estimable by looking at the value of the benefit received on the open market.
- Contributions to college or university athletic programs are subject to an additional limitation of 80 percent of the net value contributed if you received preferential treatment for ticket purchases due to your contribution. See your written acknowledgment from the receiving institution for details.
- Frequently exercisable privileges and discounts (admission, parking, etc.) received as a member to a qualified organization, such as a museum or zoo, can be disregarded from the benefit computation above if the annual membership to the organization costs $75 or less.
Most charitable organizations are qualified recipients of tax-deductible contributions under Internal Revenue Code Section 501(c)(3) or other tax provision. However, some organizations don’t qualify, including:
- Political organizations, including candidate’s campaigns and political action groups
- Fraternities and sororities at the national or chapter level due to their tax structure as social organizations. Many fraternities and sororities have related foundations with §501(c)(3) status that qualify for tax-deductible giving. In addition, certain gifts to the educational institutions themselves, directed to support fraternity or sorority activities, may qualify
- Foreign organizations (with some exceptions)
Early planning is essential.
- Investment custodians have year-end deadlines for gifts of securities
- Qualified appraisals may be required to substantiate the contribution FMV
- Recipient signatures on Form 8283 may be required for contributions of certain noncash property
- Certain state tax credits and incentives require pre-approval prior to making the contribution
Supporting documentation comes early and in various forms.
- It’s helpful to start a tax envelope early in the year so charitable acknowledgments (and various other tax documents) can be saved as received
- Print and file email confirmations and electronic check copies when received
- Note detailed descriptions and values of used clothing/household goods on receipts at time of contribution. Blank receipts hold zero credibility without descriptions of donated items
- Many credit cards offer “year-end summaries” that categorize transactions assisting with identification of charitable contributions
- If written acknowledgment is not received or lost, most organizations are helpful in providing additional copies when asked
Charitable contributions may be limited due to your tax situation.