Required Minimum Distributions to Charity

If you are over age 70 1/2, you may be able to reduce your adjusted gross income (AGI) and receive a tax deduction for donating to your favorite charity. Generally, taking a required minimum distribution (RMD) from your traditional IRA increases your taxable income. However, you can choose to have your RMD send directly to a charity which is not included in your AGI. Even more beneficial, this good deed will qualify as a charitable contribution.

Much has been in the news regarding the new tax law and the increase in the standard deduction for 2018. For a married couple filing a joint return, this amount is $24,000. This means your itemized deductions, which include charitable contributions, would have to exceed $24,000 before you receive any benefits.

For a couple whose RMD for 2018 may be $40,000, they can decide to send any or all of the distribution to a charity. Choosing to donate $25,000 will allow them to itemize their deductions and only increase their AGI by $15,000. The limit on the tax free transfer to charity is $100,000 each year.

For questions or additional information, please contact Jaclyn Ellis, CPA at jellis@bwtpcpa.com of 314-576-1350.

Maximizing Your Charitable Contributions

Here are some helpful points to consider when making charitable contributions to ensure you get the most for your contribution.

Verify nonprofit status

For charitable contributions to be deductible they must be made to qualified organizations. The organization must be recognized as a 501(c)(3) organization with the IRS in order for your contribution to qualify. Contributions made to individuals or political parties do not qualify for deduction.

Noncash contributions

In order to claim the maximum value for donated property, it is important to maintain descriptive records of what was donated, when it was donated, and the fair market value of the goods at the time of donation. Items must generally be in good condition in order to qualify for a deduction. In addition to your records, request receipts from all organizations you make contributions to; keep these with your tax documents.

Special rules

If you donated your vehicle this year, there are special rules that determine what the value of your contribution is. The value is generally the amount the organization is able to sell the vehicle for, however, there are some exceptions. If the value of the vehicle exceeds $250, the organization should send you written communication that will detail the amount to report on your tax return.

Mileage

Miles driven for charitable purposes are deductible. While the rate for charitable mileage is only 14 cents per mile, compared to the business rate of 53.5 cents per mile (for 2017), these miles are still an eligible deduction that many pass on.

Benefit from contribution

If you’ve received anything in return for your contribution, the value of your contribution must be reduced by the fair market value of the goods or services you received.

 

If you have any additional questions, please contact Brian Reed at 314-576-1350 or at breed@bwtpcpa.com.

How to: Non-Profit Fundraising on the Web

The Internet has been a boon for nonprofit organizations. Charities hoping to raise awareness — and money — can now reach a worldwide audience with minimal expense. Just keep in mind that the same rules that apply to fundraising via traditional media apply to Internet fundraising.

Deductibility Disclosures

Not all tax-exempt organizations can receive tax-deductible donations. The IRS requires all organizations that accept contributions online to clearly state on their web pages whether donations are tax deductible. The same information should also appear on electronically generated receipts.

Third-party Fees

If you pay professional fundraisers or other private parties for their help with Internet fundraising, the fees must be reasonable and consistent with your 501(c)(3) status. They must not be excessive and cannot provide direct or indirect private benefit or private inurement.*

Quid Pro Quo ContributionsDonate_iPad

When a donor contributes and receives something of value (goods or services) in return, it’s called a quid pro quo contribution. To avoid violating the rules against private benefit or private inurement, your charity generally must acknowledge quid pro quo contributions by providing an estimate of the fair market value of the goods or services received and a statement that only the portion of the donation in excess of that value is deductible.

Logos and Links

Linking to your sponsors’ or donors’ websites or displaying their names, logos, or products on your website in return for their support could be construed as selling advertising and could generate unrelated business taxable income (UBTI). Online merchandise sales could also generate UBTI.

Not Yet Tax Exempt?

If your group is in the process of applying for 501(c)(3) status but hasn’t yet been recognized as tax exempt, you must state in a clear and conspicuous manner on your donation web page that contributions may not be tax deductible. You also must include information about actual and planned fundraising activities and expenses — including your online efforts — on your group’s application and on its annual Form 990 information return.

Do you have specific questions?  Contact Ray Brune, CPA, rbrune@bwtpcpa.com or (314) 576-1350

Good Intentions, Bad Tax Result

A recent Tax Court case* illustrates what can go wrong when taxpayers don’t have all the documentation required to support their deductions for charitable contributions. The case involves a couple who had made a series of cash donations totaling approximately $25,000 to a tax-exempt organization (their church). They claimed a deduction for their contributions, and the IRS disallowed it on audit.Gravel 04242013

First round. The couple defended their deduction by producing records of the contributions. The records included copies of their canceled checks and a letter from the organization acknowledging the donations. But that wasn’t enough proof to satisfy the IRS.

Why? The letter failed to state whether the organization had provided any goods or services in consideration for the contribution. This statement, along with a description and good faith estimate of the value of any goods and services provided, must be included in acknowledgments of contributions of $250 or more. (The value of any goods and services provided is subtracted from the amount contributed to determine the deductible amount.)

Second round. The couple then obtained a second letter that included the required information. However, this still wasn’t good enough. The reason: The letter hadn’t been provided to them contemporaneously (they didn’t have it when they filed their return) — another substantiation rule.

In court. The couple argued they had substantially complied with the regulations, but the court did not agree. The statement about goods and services is necessary to determine the amount of a charitable contribution, and the second letter that contained the statement was not contemporaneous. As a result, the couple couldn’t claim the deduction.

* David P. Durden, et ux. v. Comm’r (TC Memo. 2012-140, 5/17/2012)

Charities and Politics — Not a Good Mix

When it comes to politics, charitable and educational organizations should proceed with caution. If an organization violates the IRS’s rules on participating in political campaigns, it could lose its tax-exempt status.

Political Campaign Activity

Nonprofit organizations are prohibited from participating or intervening in any political campaign activity that favors or opposes a candidate for public office. The rule applies to charities, educational institutions, churches/religious organizations, and other groups that are exempt from tax under Section 501(c)(3) of the tax code.

The rule is designed to prevent organizations from using tax-deductible contributions from the public for political campaign activities. Prohibited activities include:

Engaging in fundraising,

Making campaign donations,

Distributing statements, and

Rating candidates (even if the rating is on the basis of nonpartisan criteria).

Voter Education

Not all forms of political activity are prohibited. Debates and forums are allowable educational activities, as long as the sponsoring charity shows no preference for or against a certain candidate.

Nonpartisan voter guides also may be distributed by organizations. However, voter guides may be closely scrutinized by the IRS, which examines not only their content but also checks if the pictures and size of type are presented in a nonbiased manner.

Online Communications

Both political and charitable organizations use the Internet to communicate information to the public. To distribute that information to as many people as possible, organizations often link their sites to other sites. This could be a potential problem for charitable organizations, since the IRS could view a link on a charity’s website to a political candidate or organization as an implied endorsement.

The IRS will treat information posted on an organization’s website that favors or opposes a candidate the same as if the organization had distributed printed material, oral statements, or broadcasts that favor or oppose a candidate. Organizations should carefully monitor their website postings and links to avoid any violations of the campaign restrictions.