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6 Things to Know About Charitable Giving Limits and Tax Deductions

By Goldman Sachs Personal Financial Management

6 Things to Know About Charitable Giving Limits and Tax Deductions

Have you heard about GivingTuesday? Celebrated on the Tuesday following U.S. Thanksgiving, (and retail-oriented Black Friday and Cyber Monday), GivingTuesday was founded in 2012 by New York’s 92nd Street Y in partnership with the United Nations Foundation. Now an independent organization, GivingTuesday uses the power of technology and social media to inspire people around the world to show up and give back to causes and issues that matter to them.

GivingTuesday has become not only a day to spread the ideals of generosity globally but the official kick-off of the traditional giving season that has long surrounded the Christmas holiday in America. America has traditionally rewarded generosity throughout the year, through its culture and its tax laws. In fact, the charitable tax deduction was introduced as early as 1917 to encourage and reward continuing private support of charitable and educational institutions.

Although the charitable tax deduction has been altered many times over the past 100 years, its purpose and potential for reward remains the same. However, if you plan to donate cash or property during this giving season or any time in the year, there are facts the IRS provides on charitable contributions that you need to know to take full advantage of the potential tax rewards.

You must itemize your deductions to benefit.

This is the most basic and important thing you need to know about claiming charitable tax deductions—you can only deduct your cash or property contributions if you itemize deductions on Form 1040, Schedule A, of your tax return. This is typically only in your best interest if the total of all your itemized deductions exceeds the amount of the standard deduction you would receive for your filing status. Besides charitable donations, itemized deductions can be taken for things like medical and dental expenses, state and local tax costs and home mortgage interest.

The TCJA (Tax Cuts and Jobs Act) of 2017 nearly doubled the standard deduction. The Joint Committee on Taxation estimates that about 88 percent of the 150 million households that file taxes will now take the increased standard deduction. This leaves just over 10 percent of American households eligible to take advantage of the charitable tax deduction.

The required record-keeping is detailed and specific.

Your written donation records must indicate the name of the charitable organization, the date of your contribution, and the amount that you gave. Canceled checks or bank statements will work for small donations. However, for donations over $250, you must also have a letter of acknowledgment from the organization.

You will need to fill out Form 8283, Noncash Charitable Contributions and attach it to your return if your deduction for a noncash contribution is more than $500. If you donated property worth more than $5,000, you’ll need to base the value on a qualified appraisal. You must submit the qualified appraisal with your return if the property’s value exceeds $500,000.

If you receive a benefit from your contribution such as merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can only deduct the amount that exceeds the fair market value of the benefit received.

You must contribute to a qualified tax-exempt organization.

Most charities must have 501(c)(3) tax-exempt status, but some organizations, including churches and non-profit volunteer fire companies, are not required to obtain 501(c)(3) status from the IRS to count as qualified charities. The IRS provides a search tool that enables you to check the status of an organization you're considering.

There are complex charitable contribution deduction limits.

There are limits to how much you can deduct for charitable contributions. You can deduct most cash contributions up to 60% of your adjusted gross income. However, the rules for property contributions and overall contribution limits are complex and depend on the nature and tax-exempt status of the charity or charities to which you are donating. You should consult a tax expert to help you determine how much you can deduct in a given year. If your gifts exceed the thresholds, you may be able to carry the excess over for up to five tax years.

You may be able to take a partial tax deduction for a charitable gift annuity.

If you are making a gift to a large charitable organization like your alma mater, under an arrangement that gives you regular fixed payments over your lifetime, with the charity inheriting the remaining principal after your death, that is known as a charitable gift annuity. At the time of your initial donation, you may be able to take a partial tax deduction for the gift. The size of the deduction would be based on the estimated amount that will eventually go to the charity after all the annuity payments have been made. Before setting up any charitable gift annuity, consult your financial advisor about all the benefits and drawbacks for your particular financial situation.

You can make charitable contributions from an IRA (Individual Retirement Account).

Otherwise taxable distributions directly from an IRA to an eligible charitable group are known as qualified charitable distributions (QCDs). QCDs offer tax benefits because they can be excluded from gross income (up to a limit of $100,000 per individual account holder).

One strategic benefit of QCDs is that they can help older taxpayers satisfy individual retirement account (IRA) required minimum distributions through meeting their philanthropic goals.

The other potential benefit offered by QCDs is for older taxpayers who are not itemizing deductions on their tax returns. They may still be able to save on taxes by making their charitable contributions with pretax dollars through an IRA.

A qualified charitable distribution can only be made on or after the date the IRA beneficiary reaches age 70½ and it must be made directly by the IRA trustee to the charitable organization.

Although you may receive tax benefits from the strategic use of QCDs, you also need to consider that distributions from IRAs may incur administrative fees and charges, such as early redemption fees or sales charges on funds or securities. There are also record-keeping requirements that your tax adviser should explain.

The Setting Every Community Up for Retirement Act (SECURE Act) was passed by the Senate on December 20, 2019 and became effective on January 1, 2020. The SECURE Act will affect many retirement savers and specifically the amount of QCDs a taxpayer can deduct. You should discuss the impact the SECURE Act may have on your retirement planning with a tax advisor.

At United Capital, a Goldman Sachs Company, our private wealth management advisors believe it’s not just about money—it’s about your entire life. Money is just fuel for living the life you want, and living richlymeans something different for each person. If your life includes charitable giving, on GivingTuesday or any day of the year, talk to one of our advisors about how you could optimize your donation plan.

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Goldman Sachs Personal Financial Management

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.

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