IRS Rules for Charitable Contributions

I had no idea you can avoid capital gains on charitable contributions in the US. It's pretty well-known that, in the US, you can deduct the $ value of what you give to charity from your income. So if you earned $100k this year and give $5k to charity, your net taxable income is $95k. If you were paying $20k in taxes and now pay $19k in taxes, maybe you can give a bit more. Sweet, but most people know this. What wasn't clear to me is that you can give appreciated stock directly to charity, maximizing your impact. So let's pretend you're sitting on $5,000 of stock that you bought for $3,000. The naive thing Stefan would do is to sell that $5,000 of stock for cash, pay capital gains taxes on the $2,000 (anywhere from $0 to $800), and then send that cash to charity. Only $4,200. What you can do instead is *give the stock* to charity. That way _I_ don't have to sell it which triggers capital gains, and when the charity sells it they don't pay taxes because they're a charity. They get the full $5,000! A lot of worthy charities aren't really set up to receive stock shares - that's kind of cumbersome. So there exist what are called Donor Advised Funds (I use Schwab). These sound complicated but they're not. They're basically micro-charities you set up (you can even give them a cute name!) for receiving *your* contributions, and they go on to distribute cash checks to charities that you suggest. You set up an account, make transfers to it, and the tell them which charities to pass the money on to. Checks in the mail. In the spirit of Thanksgiving, if you're planning on giving this year, this may enable you to give more to your charity of choice and less to Uncle Sam!

Are you charitably inclined and sitting on a big stock gain in a taxable account? Read this before your next donation. Most people give to charity in a surprisingly tax-inefficient way. They donate a few thousand dollars in cash each year. Not enough to itemize their deductions, which means there’s no tax benefit. Great for the charity, but a missed opportunity for the donor. Here’s a smarter approach I often recommend: ✅ Frontload 5–10 years of donations using appreciated stock ✅ Contribute to a Donor Advised Fund (DAF) ✅ Deduct the fair market value* ✅ Avoid capital gains tax on the position A real example: A client of mine bought a high flying tech stock back in the early 2010s. Nearly the entire position is gain. Before we started working together, she was donating ~$5k/year in cash and getting no tax benefit. This year, she will frontload $50k of stock into a DAF. Which means... ✅ She gets to deduct the full market value on her 2025 tax return ✅ She avoids capital gains tax on a highly appreciated position ✅ She now has 10 years of charitable giving already set aside If you’re committed to giving and have appreciated assets, this approach can make your generosity go further. *The amount you can deduct in a given year depends on your income. For appreciated securities, the limit is generally 30% of AGI. Anything above that can be carried forward for up to 5 years. Disclaimer: This strategy has nuance and moving parts. This post is for educational purposes only. It’s not tax advice. Talk to your financial planner and CPA before taking action.

Unlock the Secret Tax Benefits of Charitable Giving 🎁 "I donated to charity solely for the tax deduction!" — Said no true philanthropist ever. We give because we care. But let's be real: why not optimize your generosity and potentially reduce your tax burden? Here's a breakdown of what savvy donors understand about maximizing their impact: Understanding Eligible Donations: Qualified Organizations: Only donations to IRS-recognized 501(c)(3) organizations qualify for deductions. That heartfelt GoFundMe campaign? While admirable, it won't count for tax purposes. Non-Cash Contributions: Be aware that limits for non-cash donations (like clothing or goods) can vary based on the item's value. The Importance of Documentation: Keep detailed records! The IRS requires meticulous documentation of your contributions. Receipts, acknowledgments, and appraisals (for larger non-cash items) are crucial. Strategic Giving Considerations: Itemizing vs. Standard Deduction: Remember, you can only deduct charitable contributions if you itemize on Schedule A (Form 1040). For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions don't exceed these amounts, itemizing might not be beneficial. Maximize Impact: You're already supporting causes you believe in. Strategic planning can help you amplify that impact while potentially reducing your tax liability. Are you planning to make a significant charitable contribution this year? Let's discuss strategies to optimize your giving and ensure you're taking advantage of available tax benefits.

While preparing 𝐅𝐨𝐫𝐦 𝟏𝟎𝟒𝟎, it is common to come across 𝐫𝐞𝐜𝐞𝐢𝐩𝐭𝐬 for 𝐧𝐨𝐧-𝐜𝐚𝐬𝐡 𝐝𝐨𝐧𝐚𝐭𝐢𝐨𝐧𝐬 provided by clients. Many times, these receipts are 𝐝𝐢𝐟𝐟𝐢𝐜𝐮𝐥𝐭 𝐭𝐨 𝐫𝐞𝐚𝐝 or are 𝐥𝐚𝐜𝐤𝐢𝐧𝐠 in some 𝐝𝐞𝐭𝐚𝐢𝐥𝐬. In such cases, we usually 𝐚𝐬𝐤 𝐜𝐥𝐢𝐞𝐧𝐭𝐬 to give us more information so that we can 𝐜𝐨𝐫𝐫𝐞𝐜𝐭𝐥𝐲 𝐢𝐧𝐜𝐥𝐮𝐝𝐞 it in the tax return. However, a recent case has given an 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭𝐢𝐧𝐠 𝐫𝐮𝐥𝐢𝐧𝐠. Let's understand. In Besaw v. Commissioner, Besaw claimed a deduction of $𝟔,𝟕𝟔𝟎 for 𝐧𝐨𝐧-𝐜𝐚𝐬𝐡 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧𝐬. He had 𝐫𝐞𝐜𝐞𝐢𝐩𝐭𝐬 from the charities, and they were properly 𝐬𝐢𝐠𝐧𝐞𝐝 and 𝐝𝐚𝐭𝐞𝐝. But the 𝐩𝐫𝐨𝐛𝐥𝐞𝐦 was that the receipts did 𝐧𝐨𝐭 𝐝𝐞𝐬𝐜𝐫𝐢𝐛𝐞 the 𝐥𝐢𝐬𝐭 𝐨𝐟 𝐢𝐭𝐞𝐦𝐬 𝐝𝐨𝐧𝐚𝐭𝐞𝐝. When he filled out Form 8283, Beswa also 𝐝𝐢𝐝 𝐧𝐨𝐭 𝐟𝐢𝐥𝐥 in information such as a 𝐝𝐞𝐬𝐜𝐫𝐢𝐩𝐭𝐢𝐨𝐧 of the donated items, their 𝐜𝐨𝐬𝐭 𝐛𝐚𝐬𝐢𝐬, and how or when they were acquired. These 𝐦𝐢𝐬𝐬𝐢𝐧𝐠 𝐝𝐞𝐭𝐚𝐢𝐥𝐬 𝐭𝐫𝐢𝐠𝐠𝐞𝐫𝐞𝐝 an IRS 𝐚𝐮𝐝𝐢𝐭. When the IRS reviewed his receipts, the receipts did not show descriptions of the donated property. Because the 𝐥𝐚𝐰 𝐫𝐞𝐪𝐮𝐢𝐫𝐞𝐬 𝐭𝐡𝐢𝐬 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 to substantiate a deduction, the 𝐈𝐑𝐒 𝐝𝐢𝐬𝐚𝐥𝐥𝐨𝐰𝐞𝐝 his 𝐞𝐧𝐭𝐢𝐫𝐞 𝐜𝐥𝐚𝐢𝐦. This resulted in an additional tax liability of about $2,600. Besaw 𝐚𝐫𝐠𝐮𝐞𝐝 in 𝐜𝐨𝐮𝐫𝐭 that his 𝐬𝐢𝐠𝐧𝐞𝐝 𝐫𝐞𝐜𝐞𝐢𝐩𝐭𝐬 should be 𝐞𝐧𝐨𝐮𝐠𝐡 to prove the donations. The 𝐜𝐨𝐮𝐫𝐭 𝐚𝐠𝐫𝐞𝐞𝐝 that he had, in fact, 𝐝𝐨𝐧𝐚𝐭𝐞𝐝 𝐭𝐡𝐞 𝐢𝐭𝐞𝐦𝐬 and that his intentions were genuine. Still, the 𝐥𝐚𝐰 𝐰𝐚𝐬 𝐜𝐥𝐞𝐚𝐫, a receipt must describe the 𝐥𝐢𝐬𝐭 of 𝐝𝐨𝐧𝐚𝐭𝐞𝐝 𝐢𝐭𝐞𝐦𝐬 to 𝐪𝐮𝐚𝐥𝐢𝐟𝐲 for a deduction. As a result, the court 𝐫𝐮𝐥𝐞𝐝 in 𝐟𝐚𝐯𝐨𝐫 of the 𝐈𝐑𝐒. 𝐍𝐨𝐭𝐞: This case is a reminder for us and for clients. A signed receipt alone is not enough to claim a deduction for non cash donations. Proper documentation must include a description of the donated property, cost basis, and other required details. It is always better to educate clients to keep complete and accurate records so their deductions hold up if ever reviewed by the IRS. #ustax #ustaxation #cpa #uscpa #taxseason #donation #learning #caselaw #cpafirm #cpafirms

IR-2024-289 - FROM THE IRS TODAY WASHINGTON — The Internal Revenue Service reminds individual retirement arrangement (IRA) owners age 70½ and older that they can make up to $105,000 in tax-free charitable donations during 2024 through qualified charitable distributions. That’s up from $100,000 in past years. For those age 73 or older, qualified charitable distributions (QCDs) also count toward the year's required minimum distribution (RMD). Generally, IRA distributions are taxable, but QCDs remain tax-free if sent directly to a qualified charity by the trustee. To make a QCD for 2024, IRA owners should contact their IRA trustee soon to ensure the transaction completes by year-end. Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs don’t require itemizing deductions. For those planning ahead, starting this year, the QCD limit is subject to annual adjustment, based on inflation. For that reason, the annual QCD limit will rise to $108,000 in 2025. Reporting and documenting QCDs For 2024, QCDs should be reported on the 2024 tax return. IRA trustees will issue Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in early 2025 documenting IRA distributions. The full amount of any IRA distribution goes on Line 4a of Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors. Enter “0” on Line 4b if the full amount is a QCD, marking it as such. Donors must obtain a written acknowledgement from the charity showing the contribution date, amount and confirmation that no goods or services were received. Bob

Get a current-year tax benefit. Pay no capital gains on your appreciated stock. Give more to your favorite charity and less to the IRS. Here is the strategy we have used for our athletes and entrepreneurs: The large majority of our clients face lumpy incomes. They might have a large contract one year and little income in future years. They might have a large exit or a career year in their business with uncertain earning power the next. For clients in this situation who want to give money away to charity, we use Donor Advised Funds. What is a Donor Advised Fund (DAF)? A DAF is a type of account that allows you to bunch donations together in a certain year. You get a current year tax benefit for the amount you contribute but you can distribute the money to your favorite charity over time. How does using this during high-income years help? Let's say you are in the top federal income tax bracket at 37%. Every dollar you donate to charity in that year will allow you a tax savings of 37 cents. You also might not always be in the top tax bracket. This allows you to take advantage of your high-income years to reduce your tax bill. Example: My wife and I give away money each year but we funded our DAF during my baseball career. I was in the highest tax bracket which allowed me to give more to my favorite charity and less to the IRS. Why is donating appreciated stock better than donating cash? We try to never have clients donate cash. The reason is you are potentially missing out on a further tax benefit. When you donate appreciated stock to a DAF, you pay no capital gains on that stock. Example: You bought a stock for $2 and now it is worth $10. If you were to sell this stock you would owe capital gains tax on the $8 it went up in value. If you donate this stock to your DAF you get the entire tax benefit of the $10 donation and pay no tax on the $8 it appreciated, a double tax benefit. As with nearly every strategy we use with clients, I do it as well. Here is how all this has played out for me: My wife and I donated appreciated stock during my baseball career. We received a large current-year tax benefit in the year I donated. We have kept the money inside my DAF invested in the stock market and it has grown. We donate money each year to our favorite charities out of our DAF. This has left us with a charitable giving account that has sent out thousands in donations but stayed at the same relative level due to the growth of our investments. - Repost this to share it with your network and follow me, Jacob Turner, for more ways to get smarter with your money.

The end of the year is near, and many of our clients are considering charitable donations for both giving back and maximizing tax benefits. Here are some strategies to help you make the most of your charitable giving: - **Cash Donations**: While simple, ensure you itemize deductions to unlock tax benefits fully. - **Stock Donations**: Donate appreciated stocks to avoid capital gains tax while deducting the stock's full fair market value. - **Donor-Advised Funds (DAF)**: Contribute multiple years' donations in one year to "bunch" deductions for a larger tax break. - **Qualified Charitable Donations (QCD)**: If you're over 70½, consider donating directly from your IRA to reduce taxable income. - **Combination Strategy**: Explore combining approaches like donating appreciated stock to a DAF for increased deductions and tax efficiency. Charitable donations are not just about giving back; they are a valuable tool for optimizing your financial plan. If you wish to explore the best strategies for your situation, feel free to contact our office for guidance.