Charitable Contributions

A number of natural disasters have already occurred this year. Unfortunately, disasters bring out scam artists who impersonate charities to obtain money or private information under false pretenses. Be sure to verify charitable organizations before sending a check or providing a credit card number.

Now is the time to document charitable contributions made so far this year. Receipts or canceled checks are required for donations of up to $250, and a separate acknowledgment letter from the charity is required for contributions of $250 or more. The acknowledgment letter must be received by the time you file your return and must state whether any goods or services were provided to you by the charity.

Only your contribution in excess of the fair market value of anything you received is deductible. For example, if you buy a $250 ticket to a charity ball and a dinner valued by the charity at $75 is served, the excess payment of $175 is tax deductible.

With the increase in the capital gains tax from 15 percent to 20 percent for higher-income taxpayers, it may be advantageous to contribute appreciated stocks held longer than one year directly to a charity. In that case, the full fair market value of the contribution would be deductible, but the related capital gain is never subject to tax.

A transfer of IRA assets directly to a charity is also permitted through the end of the year. No charitable deduction is allowed because a deduction was permitted when the IRA originally was funded. However, the transfer is not a taxable distribution from the account, yet it fulfills the obligation of the required minimum distribution for taxpayers over age 70½. To qualify for this special provision, the IRA owner must be 70½ years of age by the date of the charitable distribution.

Robert A. Lenberg II, CPA, CMA

The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.