Charitable giving is on the rise, and given the natural disasters and human tragedies that have happened in recent months, the momentum is expected to continue.
Charitable donations reached an all-time high last year of approximately $373.25 billion, according to Giving USA 2016: The Annual Report on Philanthropy for the Year 2015. This report is published jointly by the Giving USA Foundation, a public-service initiative of The Giving Institute and the Indiana University Lilly Family School of Philanthropy.
In addition to fulfilling their philanthropic needs, Maine donors may also benefit from charitable deductions on their personal tax returns. Remember that gift-giving may come in many different forms if you’re considering donating to a new cause or a long-standing favorite one. Here are seven ways you can offer support:
1. Monetary Contributions
Your gift is generally tax deductible if you donate cash to a qualified charity. The same holds true for cash-equivalent contributions, such as an online payment to the charity using a credit or debit card.
Important note. To determine if an organization qualifies as a charitable organization, go to the IRS Exempt Organizations Select Check. Giving money to an individual or a foreign organization is generally not deductible, except for donations made to certain qualifying Canadian not-for-profits. Political donations also don’t qualify for a deduction.
The deduction limit for your total annual donations, including cash gifts, is 50% of your adjusted gross income (AGI) (or 30% to the extent donations are made to a private foundation). Any excess may be carried forward up to five years. In addition, strict recordkeeping requirements for charitable contributions are imposed by the tax code. For example, if you make a cash donation of $250 or more, you must obtain a contemporaneous written acknowledgment from the charity that states the amount of the donation and whether any goods or services were received in exchange for it.
2. Gifts of Property
Property may also be donated to a qualified charitable organization, such as marketable securities, artwork or clothing. In some situations, this can result in an extra tax break: For property that would have qualified for long-term capital gains treatment had you sold it — such as marketable securities you’ve owned longer than a year — the full fair market value of the property may be deducted. Thus, the appreciation in value while you owned the property will never be taxed.
The property must be used to further the charity’s tax-exempt mission for you to deduct the fair market value of gifts of appreciated tangible personal property. For instance, if you give a work of art to a museum, it has to be included in its collection, rather than auctioned off at a fundraiser. Gifts of appreciated property are limited to 30% of your AGI, subject to the same five-year carryforward rule as cash gifts.
For you to deduct gifts of clothing or household goods, the items generally must be in good used condition or better. Your deduction equals the current fair market value of the item, which likely is substantially less than what you paid for it.
For a donation of property worth $250 or more, you must obtain a contemporaneous written acknowledgment from the charity describing the property, including a statement of whether any goods or services were received in exchange for the donation and a good-faith estimate of the gift’s value. Note that an independent appraisal generally is required for a charitable gift of property valued above $5,000 other than publicly traded securities.
3. Conservation Easements
Typically, in order to claim a charitable donation deduction, you must give something away. However, under the rules for conservation easements, you can donate an interest in real estate to a qualified organization, such as a government unit or publicly supported charity, without relinquishing ownership and still qualify for a deduction. The donation generally preserves or protects the land or building in its current state so it can be viewed or studied.
The amount of the deduction is based on the difference between the fair market value of the land with and without the easement. Under special rules, the annual deduction is limited to 50% of AGI (or 100% for farmers and ranchers), as opposed to the usual 30%-of-AGI limit. Any excess may be carried forward for up to 15 years instead of five years. The Protecting Americans from Tax Hikes Act of 2015 recently made this tax break permanent.
The catch is that the gift must be made in perpetuity. In other words, you or your heirs can’t alter the property or rescind the organization’s rights to the property at a later date.
4. Quid Pro Quo Contributions
A charitable donor may receive a benefit in return for the contribution in some cases. These are referred to as “quid pro quo contributions.” The charity should provide you with a good faith estimate of the goods and services received and the amount of payment exceeding the value of the benefit, if you make a donation at least partially in exchange for goods or services exceeding $75. Your deduction is limited to the difference between these amounts.
For example, suppose you attend a charitable fundraising dinner. You pay $200, but the charity values the meal at $50. In this case, your deduction is limited to $150. If low-cost trinkets and nominal gifts are included, such as a mouse pad featuring the charity’s logo, your deduction won’t be reduced.
5. Donor-Advised Funds
For someone who wants to retain some control over how the charity will spend his or her contributions, a donor-advised fund may appeal. Typically, these funds are established with a reputable institution that vets charities for you and doles out money based on your recommendations. A minimum deposit of at least $5,000 may be required.
As with other donations to qualified charities, contributions to a donor-advised fund are fully deductible within the usual rules and limits. Donor-advised funds are usually easy to set up and maintain because the institution does all the administrative work for you. You can even arrange to make your gifts anonymous if you want to stay out of the limelight. The increase in the popularity of donor-advised funds has been documented in the Giving USA reports in recent years.
6. Volunteer Services
Unfortunately, you can’t deduct the value of the time you spend helping out a qualified charity. But you may be eligible to write off out-of-pocket expenses you pay on behalf of the organization. This includes such items as travel, mailing costs and lodging at a convention where you’re an official delegate. But travel expenses aren’t deductible if the trip is merely a disguised vacation.
The cost is deductible if you have to buy special clothing for your charitable activities, such as a Boy Scout or Girl Scout uniform for a troop leader. And any uniform cleaning costs also may be deductible as a miscellaneous expense, subject to the usual 2%-of-AGI floor.
7. Booster Clubs
Do you support your alma mater or a local college by contributing to its athletic booster club? Typically, these clubs enable you to purchase preferred seating at the school’s sporting events. For example, booster club members might receive priority ticket ordering privileges for home football and basketball games.
You can deduct 80% of the cost of a donation made to a booster club under the current rules. Any part of the payment that goes toward the purchase of actual tickets is nondeductible. But you might want to grab this tax break while it’s still available: The Obama administration has advocated its repeal and support for repeal is also growing in Congress.
Considering a Charitable Donation?
For philanthropic Maine individuals, there are many creative gifting options available, and many types of donations also qualify for a tax break on your federal return. But special tax rules may apply, so consult with a tax adviser to help ensure that your donation is deductible and your recordkeeping is sufficient.