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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Charitable contribution’

IRS Offers Tips for Year-End Giving

Posted by William Byrnes on December 19, 2013

In its December 16th Newswire (IR-2013-98), the IRS reminded individuals and businesses making contributions to charity of several important tax law provisions that have taken effect in recent years. The IRS highlighted the following changes in the end of year Newswire.

Special Tax-Free Charitable Distributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity.  An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.


To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
  • Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

IRS YouTube Videos:

See Publication 526, Charitable Contributions.

See Online mini-course, Can I Deduct My Charitable Contributions?


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Year-End Tax Planning Series: Charitable Deductions

Posted by William Byrnes on December 22, 2010

Map of USA showing states with no state income...

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Why is this Topic Important to Wealth Managers? Discusses charitable contributions for individuals.  May assist wealth managers plan client contributions made to charities this year.

Generally a deduction is allowed to “individuals, corporations and certain trusts for charitable contributions made to qualified organizations, subject to percentage limitations and substantiation requirements.”

The law allows for such charitable contributions as itemized deductions, as “an incentive to encourage charitable contributions”, to certain charitable organizations.

Assuming all other factors equal, “it is usually better for the donor to make a charitable gift during life than at death, because the gift can generate an income tax charitable deduction for the donor.”

How much is the deduction?

The charitable contribution income tax deduction for an individual taxpayer can be classified as not to exceed 50 percent or not to exceed 30 percent of the taxpayer’s adjusted gross income (AGI), depending on the donee charity.

For a discussion of Adjusted Gross Income or AGI, see AdvisorFX—Deductions in Determining Adjusted Gross Income and Taxable Income (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

To read this article excerpted above, please access www.AdvisorFYI.com

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IRS Changes Value of Charitable Contributions Made by Trusts

Posted by William Byrnes on November 12, 2010

IRS Form 1040X, 2005 revision

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Charitable contributions offer an opportunity to do good in the community while reaping tax benefits, but the tax benefit of a charitable contribution can be jeopardized by poor planning.  Especially challenging can be the structuring of contributions by complex trusts as illustrated by the recently released IRS ruling, ILM 201042023. 

There, a trust’s charitable contribution deduction was limited to the trust’s basis in the property;  a deduction was not permitted for unrealized appreciation of the donated property.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the benefits of charitable giving, see Use Charitable Giving to Enhance Family Business Succession Planning (CC 10-76).

For in-depth analysis of the use of charitable giving in estate planning, see Advisor’s Main Library: F�Estate Planning Through Charitable Contributions.

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Proposals for Simplification of Life Insurance Policy Donation

Posted by William Byrnes on October 25, 2010

Valuing a donated life insurance policy can be tricky when taking a charitable contribution deduction. Detailed IRS guidance on insurance policy valuation has been confined to other scenarios, such as where a policy is sold or included in an estate.  Also complicating policy donation is the requirement that a qualified appraisal of the donated policy be included with the taxpayer’s return.

For in-depth analysis of the topic of charitable giving, see Advisor’s Main Library Section 1 F—Estate Planning Through Charitable Contributions

Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

We invite your questions and comments by posting them at AdvisorFYI, or by calling the Panel of Experts.


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