Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate.

Type of gift

One of the biggest factors affecting your deduction is what you give:

Cash. You may deduct 100% gifts made by check, credit card or payroll deduction.

Ordinary-income property. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Other factors

First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Also, your annual charitable donation deductions may be reduced if they exceed certain income-based limits.

In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions.

2018 planning

While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers, reducing the tax benefits of charitable giving for them.

Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction — plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax.

You might be able to preserve your charitable deduction by “bunching” donations into alternating years, so that you’ll exceed the standard deduction and can claim a charitable deduction (and other itemized deductions) every other year.

Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward, in light of the TCJA.

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back again with Annjeanette Yglesias, one of our tax managers on our not for profit team.  Welcome back to the Playbook Annjeanette.

Annjeanette:  Thanks Jen, it’s nice to be here.

Jen:  So we’ve been talking the past few weeks about not for profits, it’s my understanding that 501C3 charitable organizations can receive tax deductible contributions.  Is that correct?

Annjeanette:  Yes, that’s correct.  501C3 organizations can receive charitable donations that are deductible by the donor.

Jen:  Okay, and do they have to do anything special to document those deductions or how does that work?

Annjeanette:  Yes actually.  When a charity receives a donation from a donor they’re required to provide a written disclosure statement.

Jen:  Does it have to include something special on it?

Annjeanette:  Basically the written disclosure statement has to provide the total amount of the payment that the donor made but also if the donor received any goods or services in connection with that donation the value of the goods and services also has to be stated on the disclosure statement.

Jen:  Now are there different brackets for the amount that someone gave?  Say somebody gave $10.00 versus somebody giving $1 million; are there different levels of documentation that someone has to have?

Annjeanette:  The requirement for the I.R.S. is any contribution over $75.

Jen:  Okay, perfect.  So that goes for both individuals giving donations, they have to make sure that they receive that documentation and then the not for profit has to make sure that they give that documentation.

Annjeannette:  That’s correct and the reason why it’s important for the donor is because the deductible amount of that payment that the donor makes to the organization is limited to the excess of the payment over the fair market value that’s stated on the disclosure.

Jen:  So that’s something they really need to pay attention to, probably gets you in the door to talk to them about.

Annjeanette:  Exactly.

Jen:  Awesome.  Well thank you so much for being here, we really appreciate it and we’ll get you back to talk about some of this stuff again.

Annjeanette:  Great.

Jen:  To learn more about how PKF Texas can help your not for profit visit PKFTexas.com/notforprofit.  This has been anther Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.

When it comes to deducting charitable gifts, all donations are not created equal. As you file your 2015 return and plan your charitable giving for 2016, it’s important to keep in mind the available deduction:

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. You may deduct 100%.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless it’s being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Finally, be aware that your annual charitable donation deductions may be reduced if they exceed certain income-based limits. If you receive some benefit from the charity, your deduction must be reduced by the benefit’s value. Various substantiation requirements also apply. If you have questions about how much you can deduct, let us know.

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.

As the end of the year quickly approaches, the holiday spirit glows a little brighter with each passing day. It causes us to consume ourselves with putting up lights and decorations, attending holiday parties, and enjoying all of the different holiday concoctions offered by Starbucks. But more importantly, the holiday spirit renews our sense of generosity and charity. Many charities, including Salvation Army and Heifer International, rely on our generous spirits during this time of year for much of their operating budgets and special programs that makes the lives of the under-served in our community a bit brighter. As you dig out the wrapping paper and sweaters from the deep recesses of your closet and decide what to give to Goodwill, you may want to consider the following important information to maximize your tax deductions. The IRS encourages your charity by allowing you to deduct charitable contributions on your individual tax return. However, there are important documentation rules taxpayers must follow in order to receive such benefits.

Substantiating cash contributions is quite simple and only requires bank records or a written receipt from the charitable organization for transactions exceeding $250.  On the other hand, rules surrounding property donations, or any other non-cash donations, become more complex as the value of the donation increases. Generally, for property contributions of $500 or less, the taxpayer must maintain a written receipt from the charitable organization detailing certain required information. If the total non-cash contributions exceed $500, but no more than $5,000, the taxpayer, in addition to maintaining the receipt mentioned above, must file IRS form 8283 (Non-cash Charitable Contributions) with their personal tax return. When a similar group of non-cash contributions (e.g. furniture, clothes, or electronics) exceeds $5,000, a written receipt from the charitable organization, form 8283, and a qualified appraisal must be completed in order to receive a tax deduction. Form 8283 must be signed by both the charitable organization and the qualified appraiser for property contributions exceeding $5,000. Generally, the receipt and the qualified appraisal do not need to be attached to the return but must be completed by the time the return is filed.

Please continue to support your local charities and if you are planning on making a substantial charitable contribution this holiday season, be sure to consult your PKF Texas tax advisor. Happy Holidays!