As we draw towards the end of 2013, the season for tax planning is in full swing. One area of tax planning comes to the forefront of many clients’ minds during the holiday season: charitable contributions. Here are some important things to keep in mind as you consider giving this year.
To be deductible, the contribution must be given to a qualified organization. The Internal Revenue Service (“IRS”) provides a tool on their website that allows taxpayers to verify the tax-exempt status of any organization (http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check)
You cannot deduct cash given to individuals, political organizations or political candidates.
You must maintain a written record of your donation, such as a bank statement or a written communication from the organization, which includes the name of the organization, the date of the contribution and the amount contributed.
The contribution must be made by December 31, 2013 to be deductible for the 2013 tax year.
If you receive a benefit from the contribution such as merchandise, tickets to an event, or other goods and services, you can only deduct the amount of the contribution that exceeds the fair market value of the benefit you received.
Most charitable contributions are limited to 50% of your Adjusted Gross Income (“AGI”).
A 30% limitation applies for donations to certain organizations, including veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations.
A special 30% limitation applies to donations of capital gain property to organizations that would otherwise qualify for the 50% limitation. This limitation does not apply if you reduce the donation to your basis in the property.
Donating appreciated stock can provide you with a charitable deduction equal to the fair market value on the date of donation. In order to receive this benefit, the stock must be held for more than one year. Otherwise, your charitable deduction will be equal to your basis in the stock.
When donating a noncash item worth more than $500 but not over $5,000, you must maintain records showing how you obtained the property, the date you acquired the property, and your basis in the property.
Noncash contributions of $5,000 or more generally require a qualified appraisal in addition to the above information.
The deductible amount of noncash contributions is generally the lesser of the items’ fair market value or your basis in the item.
You can deduct as a charitable contribution any unreimbursed expenses such as oil and gas directly related to the use of your car in giving services to a charitable organization. If you do not want to deduct your actual expenses, you may deduct the mileage driven at a rate of $0.14 per mile. You may also deduct parking fees and tolls in connection with charitable activities whether you use the actual expenses method or the mileage method.
If you are over 70 ½, you can donate up to $100,000 from your IRA directly to a qualified charity. The donation will count towards your Required Minimum Distribution (RMD), will not be taxable to you, and will not be factored in to the limitation on your charitable contribution deduction. This benefit is set to expire at the end of 2013.
In 2013, the Pease Limitation for itemized deductions has been reinstated, which will limit itemized deductions for taxpayers with Adjusted Gross Incomes exceeding $300,000 for married couples filing a joint return and $250,000 for individuals.
A detailed review of your charitable giving should be a key part of your year-end tax planning. Our team of qualified professionals is here to assist you with your year-end tax planning needs.