Charitable Giving – Tax Treatment

Charitable Giving – tax treatment

 

Tax-related information can change from year to year so please discuss your specific plans with your tax professional.

Giving a portion of our assets allows us to share our blessings with others. There are many ways to make charitable gifts to the charity of your choice, including CUMC, and to reduce your personal taxes. You can direct your gift to the annual Operating Budget or specifically to one or more of the church ministries, such as Missions, the Food Closet, Christian Education, or the Foundation.

Gifts to the Foundation are unique in that they are not spent, but rather invested and the earnings on those gifts are used to support the church as it helps to do the work we are called to do … so that your gifts to the Foundation keep giving back in perpetuity.

We’ve assembled some important tax-related information to help you consider decisions about charitable gifts:

  • Donating publicly-traded securities or mutual funds (see A. Stock Donations to CUMC below)
  • Rules for donating cash and non-monetary goods (see B. Substantiating Charitable Contributions below)
  • Donations to a charity made directly from qualifying individuals (see C. Donations to CUMC directly from your IRA Account below)

A.   Stock Donations to CUMC

There are two primary considerations for donating publicly-traded stock or mutual funds to CUMC: income taxes; and the process for gifting these assets to the church.

1)    Income Tax considerations:

With regard to income tax laws, here is a brief discussion of the basics for charitable gifts:

a. The amount of your deduction is the fair market value of the stock on the date you transfer ownership to the church. The value is determined based on the average of the high and low prices on that date and the number of shares transferred. If you are gifting shares of a mutual fund, the value would be based instead on the net asset value of the fund on the transfer date. What the church sells it for or what you paid for the stock does not determine the value of your gift. This provision applies to securities held for more than one year (commonly called long term). See paragraph 1.f below for a brief discussion of the considerations related to donating stock held for 1 year or less – short term.

b. Because the value of your contribution is the current value of the stock, you would normally only want to donate stock that is appreciated (has increased in value over your original cost, or your “basis”) rather than stock that has depreciated (stock that has declined in value from its original cost). When you donate appreciated stock, you do not have to include in your taxable income the “paper gain” or the difference between the current value and your original cost. This is why stock donations can potentially be more beneficial to you than cash donations.

If your stock has declined in value, you would generally be better off, tax-wise, selling the stock, taking the loss as a tax deduction, and then gifting the proceeds of the sale to the church.

c. The church will issue you a letter receipt indicating the name of the stock, the number of shares you donated and the date on which the church assumed ownership. It is your responsibility at tax time to calculate and claim the deduction, and file the appropriate forms with your tax return.

d. Your gift is deductible up to 30% of your Adjusted Gross Income (AGI) on your tax return. If the amount of the donation exceeds 30% of your AGI, you can carry-over the excess for up to five years. In certain circumstances there is a special election to deduct up to 50% of your adjusted gross income.

e. As with any donation, whether you see a tax benefit for the deduction depends on the amount of the contribution and your individual tax situation, including whether or not you itemize deductions. You should always consult your own tax advisor for advice to determine the effect on your individual tax situation.

f. You generally would not want to donate stock held for one year or less, commonly called “short-term” stock.  When you donate short-term stock the proceeds are treated the same as ordinary income property and the value of your donation is limited to the lesser of your cost to purchase the security or the fair market value of the security. So, if the stock has appreciated you will not get a deduction for the full market value of the security, but only for its purchase cost to you.  If the stock has depreciated in value you will only get a deduction for the current value and will not get the benefit (a loss) of the decline in market value.

2) Process for gifting the assets to the church:

a. If you hold a stock certificate showing your name(s) as owner(s):

  • Deliver, or send by Certified mail, the stock certificate to the church, to the attention of the CUMC Financial Secretary, copy to the CUMC Treasurer;
  • Accompany the certificate with a letter of instruction, signed by the owner(s) named on the certificate, indicating your desire to donate the stock to Community United Methodist Church of Huntington Beach, CA;
  • In your letter please specify the ministry, work area or program to which you want the assets directed. Examples: Foundation; Scholarships; Missions; Food Closet; Music Programs; Shower Ministry, Youth Programs; Capital Campaign, Operating Budget
  • Our Treasurer will work with our WFA broker to place the assets in our Wells Fargo General Account (2468-9459);
  • CUMC’s broker will mail you a Stock Power to sign and return, by which you authorize him to sell the stock on your behalf and transfer ownership to the church;
  • The broker will then sell the assets and CUMC’s Treasurer will distribute the proceeds of the sale to the specific ministries as directed by your letter of instruction;
  • If you obtain a stock power from your own broker, you should mail or deliver it in an envelope separate from the certificate itself;
  • The church will send you a letter acknowledging your gift, and indicating the name of the security, the number of shares received and the date the church assumed ownership. As noted above, it is your responsibility at tax time to claim the deduction and file the appropriate IRS forms with your tax return.

b. If you hold stock in a brokerage account or asset management account (commonly called stock held in a “street name”):

  •       Instruct your broker to transfer the securities “in kind” (the stock will not be liquidated/sold) to:

o   DTC #0141, First Clearing, LLC

o   Wells Fargo Advisors

o   FBO General Account (2468-9459)

o   Community United Methodist Church, Huntington Beach, CA

o   Michael Cunningham, 310-377-1942 or 800-541-4377

  • Send or deliver a letter of instruction to the attention of the CUMC Financial Secretary, copy to the Treasurer, signed by the owner(s) of the account, indicating your desire to donate the stock to Community United Methodist Church of Huntington Beach, CA;
  • In your letter please specify the ministry, work area or program to which you want the assets directed. Examples: Foundation; Scholarships; Missions; Food Closet; Music Programs; Youth Programs; Capital Campaign; Operating Budget;
  • CUMC’s broker will work with your broker/advisor to execute the transfer from your account to CUMC’s Wells Fargo General Account (2468-9459). This will occur at the price you originally paid (your purchase price). CUMC’s  broker will immediately sell the security at the current market (appreciated) price and, working with CUMC’s Financial Secretary or Treasurer, deposit the proceeds to the CUMC ministry account(s) as directed by your letter of instruction;
  • The church will send you a letter confirming that X shares of ABC stock were transferred to CUMC ownership at $Y per share, the appreciated price on the date CUMC took ownership. On your taxes you will use that letter to support a charitable deduction in the amount of that transaction. Example: you paid $10 for the stock; you donate it at a market value of $100 on the date of transfer to CUMC; you receive a tax benefit (itemized deduction) of $100, rather than having a $90 tax (gain) exposure if you had sold the stock for $100 and donated that amount to the church;

B.   Substantiating Charitable Contributions

1)    This article contains information to assist you in substantiating your charitable contributions. While all contributions must be substantiated, contributions of $250 or more require a written receipt from the charity. If you donate property valued at more than $500, additional requirements apply.

a.    General Rules. If you claim a deduction for a charitable contribution you must maintain reliable written records regarding the contribution, regardless of the value or amount of the contribution.  For a contribution of money, you generally must maintain a bank record or a written communication from the donee (the receiving charity) showing the name of the donee organization, the date of the contribution, and the amount of the contribution. It’s not sufficient to maintain other written records, such as a log of contributions. This means you cannot claim cash donations to any charity without having a cancelled check (or electronic facsimile thereof) or a receipt from the charity. If you place cash in the collection plate and you want to be able to claim a deduction for it, you must place it in an envelope with proper name and address information so the charity can issue you a receipt. If you place a check in the collection plate, be sure the address and contact information on the check is correct.

b.    For a contribution of property other than money, you generally must maintain a receipt from the donee organization showing the name of the donee, the date and location of the contribution, and a detailed description (but not the value) of the property.  Donations of property items of minimal value cannot be claimed.  While there are no specific items listed for this rule, you can assume you may potentially not claim deductions for things such as used underwear, etc.  (food donations are okay).  Additionally, the property donated must be in good used condition or better.  No property in poor condition is deductible.  You should document the condition as best you can either by written notes or perhaps pictures.  Under those circumstances, you must maintain reliable written records regarding the contribution. The required content of such a record varies depending upon factors such as the type and value of property contributed.  The above rules related to minimal value, condition, etc. do not apply to property donations in excess of $500 if you have a qualified written appraisal of the item(s).

c.    Stricter substantiation requirements apply in the case of charitable contributions with a value of $250 or more. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution by a contemporaneous written acknowledgement of the contribution from the donee organization. (This means that if all you have for support is your cancelled check, that is not good enough under the current rules).  You must have the receipt in hand by the time you file your return (or by the due date, if earlier) or you won’t be able to claim the deduction.

d.    The acknowledgement from the donee must include the amount of cash and a description (but not value) of any property other than cash contributed, whether the donee provided any goods or services in consideration for the contribution, and a good faith estimate of the value of any such goods or services that you did receive. If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn’t reduce the charitable deduction available. However, if you receive any other benefits in return, your donation deduction cannot be for the full amount of the payment (For instance if your check included a dinner and show-see more information below).

e.    If you make separate or periodic contributions of less than $250, you won’t be subject to the requirement to get a written receipt, even if the sum of the contributions to the same charity total $250 or more in a year.  (Although you cannot purposely give several donations of less than $250 in close proximity to one another with the intent to avoid the $250 single limit rule). Also, if you have contributions withheld from your wages, the deduction from each payment of wages is treated as a separate contribution for purposes of the $250 threshold.

f.     In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Non-cash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. A qualified appraisal isn’t required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) non-publicly-traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more.  For any non-cash donations to a charity, the charity is not allowed to value them for you, regardless of amount, except for publicly-traded securities.  Determining the value of the gift is your responsibility.  However, if you do obtain an appraisal for any gift of property to the church, the Church may ask you for a copy of the appraisal to assist with the valuation of the gift for church purposes and to assist them in determining whether to accept the non-cash gift.

2)    Recordkeeping for contributions for which you receive goods or services.

a.    If you receive goods or services, such as a dinner or performance tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70.  But your contribution is fully deductible if:

You received free, unordered items from the charity that cost no more than $10.60 (2016 amount) in total;

You gave at least $53 (2016 amount) and received only token items (bookmarks, key chains, calendars, etc.) that bear the charity’s name or logo and cost no more than $10.60 (2016 amount)  in total; or

The benefits that you received are worth no more than 2% of your contribution and no more than $106 (2016 amount).

b.    If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.

c.    Also remember that if you purchase goods or services at a charity auction, chances are you may have no charitable deduction.  Your only deduction would be the difference between the amount you pay over the amount of goods or services you receive in return, and you would have to get a receipt from the charity as detailed above. Also, payments made for the purchase of raffle tickets or “chance” tickets are never deductible.

d.    Cash contribution made through payroll deductions. A contribution that you make by withholding from your wages may be substantiated by a pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld for the purpose of a payment to a charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn’t provide goods or services in return for contributions made by payroll deduction.

The deduction from each wage payment of wages is treated as a separate contribution for purposes of the $250 threshold.

e.    Substantiating contributions of services. Although you can’t deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.  This also includes mileage for charitable work at the specified annual charity mileage rate (which is different from mileage rates for business use).

f.     As discussed above, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn’t know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate (by you, not the charity) of the value of those goods or services.

C.   Donations to CUMC directly from your IRA Account

1)    A change in the tax law was made late in December, 2015 that made permanent a law that has been in and out of force for many years.  This relates to the ability to make a direct contribution from your IRA to CUMC or other qualified charity.  If you qualify to do this, then the distribution from your IRA account (even if it is your required minimum distribution or RMD) is not includable in income in the year received.  However, neither do you receive a charitable donation deduction for the amount because you cannot “double dip” on the exclusion.  The potential advantage to you of using this procedure if you qualify is that by not including the IRA distribution in your income you reduce your Adjusted Gross Income which can potentially increase some of your other itemized deduction amounts because of income limitations, it can possibly reduce the amount of Social Security income that is taxed on your return depending on your other income received, and it can potentially reduce your taxable income if you are a non-itemizer who never got full or partial benefit from your charity deductions because you used the standard deduction.  Only a detailed calculation of your tax situation can determine if this opportunity would be beneficial to you.

2)    The basics of the rule provide that you can exclude from income up to $100,000 of qualified charitable distributions.  A qualified charitable distribution is one made by your IRA trustee DIRECTLY to a charitable organization or donor advised fund AND it is made on or after the date on which the individual for whose benefit the IRA is maintained has attained the age of 70-½.  If you maintain multiple IRA accounts, the $100,000 is an aggregate limit for all accounts and cannot be used for each separate account.  For married individuals filing a joint return, the limit is $100,000 per individual IRA owner.  There is no carryover provision, so if you exceed the $100,000 limit in any year, the excess amount must be included in income for that year.

3)  The transfer from your IRA account must be made directly from the trustee of the IRA to the charity.  You cannot receive the distribution and then roll it over to the church.  If you do, the income will not be excludable even though the church ended up receiving the funds.  Even if you receive from the church or charity a donation letter for your contribution credited to you, if you use the income exclusion you cannot also then take the contribution deduction even though you have a donation letter.

4)    There are potential special rules for non-traditional IRAs such as ROTH IRAs, SEP IRAs and SIMPLE IRAs.  You should consult your tax advisor for the rules regarding these if they affect your situation.