25 Days of Giving: Charity Auctions & Tax Deductions

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Candles and christmas tree for charity auction

Thanks for reading the 25 Days of Giving series! Share with friends, family, & colleagues. Knowledge is indeed a “gift” when it comes to encouraging and maximizing smart charitable giving. 

Headed to a holiday party this season? If it’s to celebrate/fundraise for your favorite charity, you might experience an auction (silent or otherwise). Charity auctions can be great fun and it feels like you’re giving back while also gaining a great gift to tuck under the Christmas tree!

Sometimes charity auction participants mistakenly believe their successful bids are completely deductible. However, since the individual receives the auction property, there is usually no federal income tax charitable deduction. But, if the bid can be shown to be in excess of the fair market value of the item, the amount in excess can be deducted as a charitable contribution.

The charity may make a “good faith estimate” of the fair value of the auction item before bidding commences.

Noel at charity auction

Let’s look at a few easy examples:

Example 1. A $50 gift certificate to a retail store is purchased at charity auction for $40. No deduction.

Example 2. A different $50 gift certificate to the spa is purchased at the charity auction for $70. This generates a $20 charitable deduction.

Example 3. You bid on and win a fruit basket for $30 at an auction supporting a local high school basketball program. The equivalent fruit basket at a local grocery store would cost $15, so you may receive a $15 tax deduction.

Unsure if your actions at a charity auction mean a charitable deduction? It’s always a good idea to get a second opinion. Also, if you’re a nonprofit leader planning on hosting a charity auction it’s advantageous to be briefed on all the tax and legal rules surrounding the event in case donors ask. I’m always happy to help and offer a free one-hour consultation. Reach me by phone at 515-371-6077 or by email at gordon@gordonfischerlawfirm.com.

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25 Days of Giving: Charitable Gifts Defined

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pinecones with candle

If you’ve been reading along with the 25 Days of Giving Series throughout December, thank you. If you’ve happened upon the GoFisch blog just now, welcome! I hope to see you back here often.

Giving for the sake of giving is great, however it’s financially wise to make certain your charitable donation is also beneficial in terms of your taxes.

Charitable gifts are defined by the IRS, at least for the purpose of qualifying for a charitable deduction from federal income tax. A review of statutes and caselaw show that the IRS attributes several major characteristics to charitable gifts:

Charitable intent

snow-globe-christmas

There must be a clear and unmistakable intention on the part of the donor to absolutely and irrevocably to divest herself of both title and control of the property.

Irrevocable transfer

The irrevocable transfer of the present legal title and dominion and control of the entire gift to the charity so that the donor can exercise no further act of dominion and control over it.

Delivery

bus with tree on top

The donor must deliver the gift to the charity. (Delivery can be made through a number of ways. This could be hand-delivered, like dropping off a check. It could also mean a secure electronic payment made on the charity’s website. In the case of charitable gifts of grain this could mean physically delivering the grain to a specific silo.)

Acceptance

The charity must accept the gift. For instance, you may want to donate part of your modern art collection to your favorite nonprofit, but if the nonprofit doesn’t have the resources to accept or doesn’t want the collection for some reason, it’s not a charitable gift.

Qualified organization

The donee must be an organization recognized as charitable by the IRS. You can use this IRS online search tool for organizations to see if the charity you’re considering donating to is recognized as tax-exempt.

Want to be sure your charitable gift is indeed a tax deductible charitable gift in the eyes of the IRS? What about charitable gifts or life insurance or a retained life estate? It certainly doesn’t hurt to take me up on my offer for a free one-hour consultation. Give me a call at 515-371-6077 or shoot me an email at gordon@gordonfischerlawfirm.com.

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25 Days of Giving: What the Personal Benefit Transfer Means for Charitable Contributions

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gold and silver christmas gift

Thanks for the reading the 25 Days of Giving series! Each day through December 25, I’m covering different aspects of charitable giving for both donors and nonprofit leaders. Have a topic you want to be covered or questions you want answered regarding charitable giving? Contact me.

The vast majority of public and private universities and colleges are tax-exempt entities as defined by Internal Revenue Code (IRC) Section 501(c)(3) because of their educational purposes and/or the fact that they are state governmental entities. If this is the case, have you ever wondered why tuition for a student to attend a university is not deductible as a charitable contribution? This is known in gift law as as a “personal benefit” transfer. The personal benefit of education for the student is equal to the tuition paid. Because of the benefit value, there is no charitable gift and therefore no federal income tax charitable contribution deduction.

university library

Another example of personal benefit transfer would be payment to a charity for specific services, and such payments are not deductible. In Hernandez v. Commissioner, the U.S. Supreme Court determined gifts of fixed amounts to the Church of Scientology (a tax-exempt religious organization) in exchange for personal counseling were not deductible. The Court held that such “gifts” were more appropriately considered payments for services rather than charitable contributions.

If you ever have a question if a charitable gift is tax deductible, don’t hesitate to contact me. It never hurts to get a second opinion on potential personal benefit situations, especially if the opinion can mean potentially avoiding an IRS audit.

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25 Days of Giving: What the “No Smile” Rule Means for Your Taxes

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The title of this sounds pretty lacking in the “merry and bright” department…especially considering this is the 25 Days of Giving series! But, the name here describes a little-known deduction beneficial for volunteers…and nonprofits to stress to volunteers to indeed encourage more volunteering!

The IRS does NOT allow a charitable deduction for volunteering your services. However, out-of-pocket expenses relating to volunteering are deductible. Yes, seriously!

Volunteering time NOT tax deductible, but out-of-pocket expenses ARE

Any given charity should provide volunteers with a description of the contributed services and state whether there has been any transfer from the charity of goods or services back to the donor. In addition to other out-of-pocket expenses, mileage is deductible at the IRS rate. Also, expenses like tolls and parking can be deductible.

For example, if a volunteer travels to attend a meeting or conference sponsored by the charity, then there is a deduction only if there is “no significant amount of personal pleasure” in the meeting. This has become known as the “no smile” rule. To be deductible, the principal purpose of the meeting must be to further charitable goals (aka operative mission). Which, if you think about it, is something worth smiling about!

2 girls "no-smile rule"

Any questions as to what donors can and can’t deduct? If you’re a nonprofit organization you may have questions about the extent of information you’re required to provide. I welcome any questions on the topics and can be easily reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com.

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25 Days of Giving: How the 529 Plan can be a Tax-Beneficial Gift

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529 plan charitable giving

 For the majority of the 25 Days of Giving series, I’m going to focus on charitable gifts made to nonprofit organizations. But, investing in a student’s future and helping to make higher education more affordable and accessible is certainly a valid cause…and has tax benefits of its own. This brings to mind a different type of gift you can give to a loved one who is currently or planning on attending college: the 529 Plan. 

The 411 on the 529

Gordon Fischer Law Firm is dedicated to Iowans, so I’ll focus on the College Savings Iowa 529 plan, but know that all 50 states and D.C. sponsor at least one type of 529 plan. There are two types of 529 plans—prepaid tuition plans and college savings plans. The College Savings Iowa plan is a tax-advantaged program sponsored and administered by the Treasurer of the State of Iowa. The purpose? Just as the name “college savings” says, it is intended to “help an individual or a family pay for higher-education costs.”

girl in graduation robes

The account funds can be used by the beneficiary for any purpose, but for the withdrawals to be considered tax-free, the money must be used for qualified higher-education expenses at an eligible educational institution by the student. Eligible expenses include elements associated with higher education such as: tuition, mandatory fees, books, required supplies, computers (including related hardware and software), internet access, equipment required for enrollment/attendance, and even room and board during any academic period where the student is enrolled at least half-time.

If withdrawals are made and not used for a qualified expense, the deductions must be added back to Iowa taxable income and adjusted annually for inflation. Additionally, the earnings part of the non-qualified withdrawal may be subject to a 10% federal penalty tax on top of federal income tax. A great alternative to non-qualified withdrawals if the student doesn’t end up going to or paying for school is transferring the money to another eligible beneficiary’s 529 account.

Who Can be a 529 Plan Beneficiary?

Your school years may be far behind you, but you can set up a 529 for any beneficiary. The only requirements are that the prospective or current student must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer ID number. The student doesn’t have to reside in Iowa or be related to you in any way. So, you could set-up a 529 for your niece, but also your friend’s son whom you’ve known since he was little…even if he lives in another state!

woman opening gift on couch

Federal, State, & Estate Tax Benefits

The most obvious benefit of College Savings Iowa 529 accounts is that contributed assets grow deferred from federal and state income taxes. Plus, Iowa taxpayers can deduct up to $3,387 in contributions per beneficiary (student) account from adjusted gross income for 2019. These contributions can usually be made up through the tax-filing deadline. (For example, you could make a tax-deductible contribution for the 2017 tax year up until the end of April 2018.)

Beyond the $3,387 state tax deduction, you can contribute up to $75,000 in a single tax year for each beneficiary (or $150,000 as a married couple filing jointly) without incurring federal gift tax. This is provided you don’t make any other gifts to that student beneficiary over the course of five years. For the purpose of the contribution, it’s as if you made the $75,000 gift over the course of five years. Any additional gifts made to the beneficiary during that five-year period will incur a gift tax.

Benefits of Smart Estate Planning: Avoiding Taxes and Fees

There’s another major benefit when it comes to the 529 and estate taxes. Money contributed to a 529 account is generally treated as a “completed gift” to the student beneficiary, but as the contributor/participant, you still have control over the money. If you were to die with money remaining in your account, it will not be included in your estate for federal estate tax purposes. In short, the 529 is a valid tool if your goal is to reduce the total of your estate to avoid the estate tax, but still, help a student you care about.

In terms of the estate tax, if you took the option for the $75,000 contribution ($150,000 for married couples) to a 529 plan account as if it was made over five years and then you die within the five-year window, a prorated portion of the contribution will be subject to estate tax. This can get a bit confusing, so please speak with your trusted estate planning attorney or tax advisor for more personalized information.

What’s your experience with 529 plans? Any questions in regards to how contributing to a 529 plan could impact your tax savings? Don’t hesitate to contact me by email (gordon@gordonfischerlawfirm.com) or phone (515-371-6077).

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25 Days of Giving: What the Heck is a Bargain Sale?

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wreath on the door

Thanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects (some well known, and some more obscure) of charitable giving each day through Christmas.

I know what you’re thinking…a bargain sale means discounts on stuff at the store. But, I’m talking about a different kind of sale—a useful charitable giving tool/technique.

Bargain sales defined

Bargain sales can be a useful charitable giving tool/technique. A bargain sale is a transaction in which a donor receives less than the full market value of property transferred to the charity. The transaction is treated as part sale, part gift, with the donor’s basis allocated proportionally between the gift amount and the sale amount.

Simple example of a bargain sale

Let’s take a simple example. Assume Jill Donor owns farmland worth $1 million, for which she paid $200,000 years ago. Jill sells the land to her local community foundation for $500,000 and starts her own donor-advised fund. Jill then makes a gift of the difference ($500,000) between the sale price and the fair market value of the farmland. Jill must pay tax on the gain element but may receive a charitable deduction on the gift element.

farmland bargain sale

The total basis of $200,000 is allocated between the gift and sale portions. Since Jill sold the land for half price of fair market value, the basis is allocated 50/50. Therefore, the allocated basis is $100,000. The gain, then, is $400,000; assuming the top capital gain tax rate of 20%, this would mean $80,000 of capital gains tax due. But Jill also avoided another $80,000 of capital gains tax by the bargain sale of the property.

The net result in this simple example is positive for Jill. Again, Jill received $500,000 in cash. But, she also may receive a charitable deduction for having gifted $500,000. The charitable deduction at, say, the top rate of income taxation, 37%, would be $185,000. One way to look at this entire transaction is that Jill received $500,000, paid $80,000 in capital gains taxes, but received a $185,000 deduction, meaning a net of positive cash flow of $605,000 to Jill.

Remember, all Iowans are unique and have individual legal and tax issues. Consult your own professional advisor for personal advice. Questions? Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

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National Estate Planning Awareness Week & a Brief History Lesson

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this week calendar

Believe it or not, National Estate Planning Awareness Week is a very real thing and we’re celebrating October 21-27! Let’s kick it off with a brief history on the Week and estate planning in general.

Background on National Estate Planning Awareness Week

National Estate Planning Awareness Week was an effort spearheaded by the National Association of Estate Planners & Councils (NAEPC) and Rep. Mike Thompson (D-CA) (with 49 other Representatives on board).  In September 2008, Congress passed H. Res. 1499 which designated the third week in October as a week for assisting the public in understanding the importance and benefits of estate planning, as well as how to assemble a qualified team of experts to assist in the process.

In general, it’s in the best interest of society when the transfer of wealth and property is as seamless and as close to the decedent’s intent as possible. That’s where estate planning comes in and why it’s so essential.

Sure, you won’t see decorations for sale for National Estate Planning Awareness Week…but you can still celebrate by discussing your estate planning needs and goals with a qualified, experienced estate planning attorney. This goes for your first (much needed) estate plan, but also revisions on existing estate plans. (Remember, estate plans never expire!)

5 Scenarios for Estate Planning Revisions

Time Warp: A Brief History of Estate Planning

For as long as people have had property, that property has been distributed or passed along in some manner or another. In early cultures property was considered to be owned collectively by a family or tribe and when a leader of the group perished the assets were divided in accordance with family/tribal customs.

Estate planning was apparent in ancient Rome under the Code of Justinian which recognized oral and written wills that were approved by a public official. In the Anglo-Saxon period of England, royalty had to approve land transfers. That changed in the 12th century when property would automatically pass to the eldest son. Under English law, the Statute of Wills was established in the 16th century which allowed a landowner to pass along their land as they wished, whether that was to the eldest or not.

Current state intestacy laws are a modern iteration of British common law in which property inheritance passed to the spouse and children in pre-defined percentages.

Unfortunately, women were often excluded entirely from estate planning; assets were only distributed amongst male heirs at law and women were disinherited. At certain points throughout history, women (such as a wife or daughter) could be provided for through a trust upon the death of the husband/father, but often that trust was dissolved if/when the woman married/remarried. Thankfully policy and society progressed, and now women and men have an equal right to inheritance and ability to convey assets.

(Legal) Word of the Day: Trust

To that point, the individual American citizen of today has the freedom to plan for the distribution of property as wished without approval needed or mandate defining who can and cannot be a beneficiary.

Estate Planning in the United States

Statue of Liberty

In U.S. history, estate planning has been intricately linked with estate taxes because estate planning techniques are tools to reduce or even eliminate the Federal estate tax. To understand that in full you could go all the way back to the Stamp Act of 1797, where a tax was passed to fund the Navy in an “undeclared war with France.” The estate tax was subsequently abolished and then reinstated with corresponding wars including the Civil War and Spanish American War.

The estate tax, more or less as we think of it today, was instituted in association with World War I in 1916. To bypass this, people would gift parts of their estates to their families to which the lawmakers responded to by passing a gift tax in 1924. It was briefly repealed and then re-enacted in 1932 and remained that way until 1976 when the gift and estate tax were consolidated.

In modern political history, the estate tax has seen a few major changes; it was entirely revoked in the 2010 calendar year after 2001 legislation phased out the tax. However, that didn’t last long. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 meant a return of the estate tax but raised the exclusion to $5 million for 2011 and 2012. Then came the American Taxpayer Relief Act of 2012 which kept the $5 million inflation-adjusted exclusion figure, but increased the maximum rate of the tax to 40 percent from 35 percent. In 2018, the exclusion rate sits at $11.18 million per individual. This means an individual can leave $11.18 million to heirs and pay no federal estate or gift tax. Married couples get an exclusion for each spouse, so a couple can leave up to $22.36 to their heirs and IRS won’t collect estate tax on it.

What the New Tax Law Means for Your Estate Plan

Final Footnote

All of this history is to say that estate planning, in some form or another, has been an important aspect of societies in the world for a long time. Regardless of the size of your estate, and just like the ancient Romans or Americans of the early 1900s, you want to pass along your assets to the people you care about and want to provide for. Claim your right to distribute your property in accordance with your wishes by ensuring you have an up-to-date, quality estate plan. The best way to get started is with my free (and no obligation) Estate Plan Questionnaire. It’s a great tool for organizing all the important information you and your estate planner need to know when creating your custom estate plan.

Think Estate Planning is Just for the Wealthy? Think Again!

This is the first of a week’s worth of articles all dedicated to the topic of estate planning as a part of National Estate Planning Awareness Week. Want to discuss your estate plan or talk about the history of the estate tax? Don’t hesitate to contact me.

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Iowa Nonprofit Sales Tax Exemptions & Remote Sellers

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hand filling out tax form

In June 2018, the U.S. Supreme Court handed down a decision in South Dakota v. Wayfair that changed the way remote sellers (like internet companies) do business in states where they don’t have a physical presence, like a brick and mortar store or a headquarters. Essentially it means these companies will start collecting sales tax in certain states with economic nexus laws already on the books to enforce collection against said remote retailers. Iowa is one such state.

What does this mean for you and your nonprofit? Most nonprofits may start seeing sales tax tacked on to certain receipts for digital accounts/services. (The rate of sales tax is based on your Iowa primary contact address.) But, some nonprofits are exempt from sales tax and therefore will need to remit an exemption certificate to the remote seller.

writing tax on a check

Taxes and Nonprofits

The interplay between taxes and nonprofits can be confusing. Even if a nonprofit is exempt from state and federal income taxes, it does not mean that entity is auto exempt from paying sales tax for goods and (taxable) services. Generally, sales taxes must be paid unless the nonprofit falls under the umbrella of some other applicable general sales tax exemption. (Local option sales taxes must also be paid on purchases made in existing areas.)

However, the Iowa Code does exempt certain nonprofits from paying sales tax on purchases. The Iowa Department of Revenue’s guide to “Iowa Tax Issues for Nonprofits” provides a (non-exclusive) list of entities that are specifically exempt from sales/use taxes under Iowa law. I’ve included the pretty lengthy list here for your convenience!

  • American Red Cross
  • Navy Relief Society
  • U.S.O. (United Service Organizations)
  • Community health centers (as defined in 42 U.S.C.A. subsection 254c)
  • Migrant health centers (as defined in 42 U.S.C.A. subsection 254b)
  • Residential care facilities and intermediate care facilities for the intellectually disabled and residential care facilities for the mentally ill (licensed by the Department of Inspections and Appeals under Iowa Code chapter 135C)
  • Residential facilities for intellectually disabled children (licensed by the Department of Human Services under Iowa Code chapter 237)
  • Residential facilities for child foster care [licensed by the Department of Human Services under Iowa Code chapter 237, except those maintained by “individuals” as defined in Iowa Code subsection 237.1(7)]
  • Rehabilitation facilities which provide accredited rehabilitation services to persons with disabilities and which are accredited by the Commission on Accreditation of Rehabilitation Facilities or the Accreditation Council for Services for intellectually disabled and other developmentally disabled persons and adult day care services approved for reimbursement by the Iowa Department of Human Services
  • Community mental health centers (accredited by the Department of Human Services under Iowa Code chapter 225C)
  • Home and community-based services providers certified to offer Medicaid waiver services by the Department of Human Services that are any of the following:
      • Health and disability waiver service providers, described in 441 IAC 77.30.
      • Hospice providers, described in 441 IAC 77.32.
      • Elderly waiver service providers, described in 441 IAC 77.33.
      • AIDS/HIV waiver service providers, described in 441 IAC 77.34.
      • Federally qualified health centers, described in 441 IAC 77.35.
      • Intellectual disabilities waiver service providers, described in 441 IAC 77.37.
      • Brain injury waiver service providers, described in 441 IAC 77.39.
  • Sales of tangible personal property and services made to nonprofit hospitals and nonprofit hospices (licensed under Iowa Code chapter 135B)
  • Statewide nonprofit organ procurement organizations
  • Nonprofit legal aid organizations
  • Nonprofit organizations organized solely for the purpose of lending property to the general public for nonprofit purposes
  • Nonprofit private museums*
  • Governmental units, subdivisions, or instrumentalities of the federal government or of the state of Iowa (This includes state, county, and local subdivisions of the government of the State of Iowa and those of any other state which provide a similar sales tax exemption to Iowa and its political subdivisions.) *
  • Recreational lake and water quality districts*
  • Federal corporations created by the federal government which are exempt under federal law *
  • Private nonprofit educational institutions located in Iowa *
  • Private nonprofit art centers located in Iowa
  • Habitat for Humanity in Iowa when purchasing building materials *
  • Toys for Tots when purchasing toys
  • Community action agencies as defined in Iowa Code section 216A.93
  • Substance abuse treatment or prevention facilities that receive block grant funding from the Iowa Department of Public Health

Sales Tax Exemption in Action

So, let’s say you’re an Iowa private nonprofit grade school that subscribes to an online newsletter service (which is based in California) so that administrators can design, write, and send a weekly email update to parents of students. Your organization would likely be exempt from the new sales tax charges imposed by the remote seller on your subscription rate.

What’s the Difference Between Public Charity & Private Foundation

Down to the Details

Exempt nonprofits must pay for their purchases from the entity’s account and should complete and submit an Iowa Sales Tax Exemption Certificate 31-014 to the remote seller.

Questions? Not sure if your nonprofit qualifies for this exemption? Don’t hesitate to contact me at any time to speak about your situation.

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Back to School Math Lesson: Wonderful Numbers of the IRA Charitable Rollover

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Did anyone sit in the very back row of their high school calculus class, slumped over, the brim of their baseball cap lowered, hoping to become invisible? I’m asking for a friend, of course. The chalk marks on the board—a series of numbers—may as well have been Mandarin Chinese to me. The teacher was no help, he spit numbers faster than a rapper and made less sense than the chalk marks. My “friend” understood nothing but somehow passed by the skin of his teeth. Law school was suddenly a sure destination (or, really, any school without math).

Back to school

Even Worse: College Math!

However, you needed an undergraduate degree before law school. (Ok…we’re talking about me, not my friend.) Thanks to the aforementioned miracle of passing calculus, my major at Iowa only required one math for graduation, at least at the time. That class was 22M-One, which was literally known on campus as 22M-Dumb. Still, I had to take the class twice. During the first try, halfway through the final exam, my friend got up, left his paper, and simply walked out. He knew he would flunk, so why torture himself or waste anyone else’s time? He barely passed the second time, and only did so after extensive tutoring.

Just curious, anyone have “math phobia” as bad as young me? This school daze story has a happy ending though. Eventually, I got past my major fear of math and was able to master the rules of math, especially as they relate to estate planning.

This Math Makes Sense

I know someone in your life (probably an engineer or actuary) has undoubtedly told you that math is fun and easy. But, when it comes to the IRA Charitable Rollover (AKA qualified charitable distribution (QCD)), this small bit of math really is!

You only need to remember six numbers:

  • 70.5 (years)
  • $100,000
  • 1 (as in one plan)
  • Zero (as in taxes owed if you do this right)
  • Zero again (as in, zero gifts in return);
  • 100% (every time I write about the IRA Charitable Rollover, I always get a certain response).

70.5 years of age

There are two threshold requirements to take advantage of a special provision known as the IRA Charitable Rollover. The first is that to be eligible you must be 70.5 years of age or older. An important nuance to note is the required annual distribution is based on the year the participant reaches age 70.5, not the day they reach that age.

The second threshold requirement is the IRA Charitable Rollover applies to IRAs only. Under the law, charitable gifts can only be made from traditional IRAs or Roth IRAs. The IRA Charitable Rollover does not apply to 403(b) plans, 401(k) plans, pension plans, and other retirement benefit plans. (I’ll discuss another great option, however, for these other retirement benefit plans, so be sure to read to the end of this blog post).

equation on a chalkboard

$100,000

Sure, living to 70.5 is great in itself, but it’s also the age where IRA Charitable Rollover allows individuals to donate up to $100,000 from their IRAs directly to a charity, without having to count the distributions as taxable income.

One Plan

A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year. The limit is per IRA owner, not per individual IRA account. Also, this amount is not portable (i.e., sharable) between spouses.

Zero (as in Zero Taxes)

The IRA Charitable Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting this money as part of their adjusted gross income (AGI). Consequently, this means not paying any taxes on them. You read that correctly: folks who are 70.5 years or older are able to transfer donations from their IRA directly to charity, up to $100,000, with ZERO taxes on that money!

What charities/nonprofits are eligible to receive the donation(s)?

Charitable contributions from an IRA must go directly to a qualified public charity. Contributions to donor-advised funds and private foundations, except in certain (narrow) circumstances, do not qualify for tax-free IRA rollover contributions.

Allow me to emphasize the gift must go directly to the charity. A donor cannot withdraw the money, and then give it to charity. Rather, the IRA administrator must send the donation straight to the charity.

What’s the Difference Between Public Charity & Private Foundation

Zero (as in gifts/services back from charity)

Donors cannot receive any goods or services in return for IRA Charitable Rollover amounts in order to qualify for tax-free treatment. As one philanthropist explained, “Why would you want to (potentially) mess up a $100,000 tax-free donation by getting a $25 tote bag?” No matter how good the bag looks, it’s not worth that!

25 Days of Giving: The Deal with Quid Pro Quo Donations

70.5 years of age and IRAs only

Once again, to be eligible you must be 70.5 years or older. Also, qualifying gifts can only be made from traditional IRAs or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not covered by the IRA Charitable Rollover law.

100%

Every time I write about the IRA Charitable Rollover, I receive communication from someone saying that life sucks because they don’t qualify for the Rollover. They aren’t 70.5 years old, or they have a different retirement benefit plan than an IRA, or both.

But, here’s the thing, anyone can still use their retirement benefit plan(s) to help their favorite charities.

Magic of Beneficiary Designations

No matter what your age, or what your type of retirement benefit plan (IRA, 401(k), 403(b), etc.), there is a super-easy way for you to help your favorite charity. Simply contact the account holder and name your favorite nonprofit as a beneficiary! This is so simple. No lawyer or drafting of legal documents is required—the owner of the retirement benefit plan simply has to direct the account holder to change the beneficiary. There are also no taxes with this charitable giving approach because, frankly, when the donation passes to the charity it’s because you’re dead. No taxes for the nonprofit either; as a qualified nonprofit, they don’t pay taxes on donations.

Note that if the account owner is married, the spouse should be informed and may need to consent to the designation. And, please follow up with the account holder to make sure the account holder received your request and made the beneficiary changes properly in full.

6 Simple Tips for Beneficiary Designations

Want to work through how the IRA Charitable Rollover math fits in with your planned giving goals and current/future tax strategy? Reach out to me anytime. I offer a free, no-obligation one-hour consultation. You can contact me by email (gordon@gordonfischerlawfirm.com) or on my cell (515-371-6077).

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Tax Talk: Deductibility of College Sports Ticket Rights

iowa state football

Happy National Tailgating Day! As we fire up the grill and hang up the pendants in prep for some college football, I figured today was the perfect day to explain where college sports ticket rights fall under the tax code. Why? Because the Tax Cuts and Jobs Act (TCJA), passed in 2017, made some major changes to the deduction for charitable contributions.

A Bit of History

Before the tax code overhaul, donations made to nonprofit universities and colleges in exchange for the direct or indirect right to purchase seats at athletic events were 80% deductible as a charitable contribution on itemized taxes. Since the late 1980s (under the Technical Corrections Act of 1988), colleges used this tax code provision to incentivize donors’ gifts and modeled the practice after seat licenses in pro sports. However, this was a costly provision; this tax break was apparently costing the U.S. Treasury at least $100 million a year (at the time of estimation in 2012), and possibly as much as $1 billion, according to Bloomberg.

Tax Talk: If You Die in Iowa is There a State Estate Tax?

Federal Tax Change: Deduction Repealed

In the post-TCJA world, this deduction is now repealed. So, what do you need to know? If you make a donation to a university in exchange for a receipt that gives you the ability to purchase certain seats (think the 50-yard line at Kinnick Stadium!), this charitable gift is no longer tax-deductible at the 80% rate on your federal income taxes. Of course, you can still elect to make valuable, qualified charitable donations to your alma mater or another favorite higher education institution, but college sports fans can’t claim a tax break specifically made to secure college sports season tickets.

What the New Tax Law Means for Your Estate Plan

State of Iowa Taxes: Deduction Remains

However, Iowa sports fans cans still cheer, because Iowa did not parallel the federal repeal. Individuals can still deduct 80% of a qualifying contribution for those Cyclone, Panther, Bulldog, or Hawkeye seats to the extent it does not exceed the individual’s applicable adjusted gross income deduction limitation on state income taxes. Keep in mind, of course, you will need to itemize to claim the deduction.

Tax Talk: Federal & State Differences on the Charitable Deduction Limitation

Still have questions about how to maximize contributions to your favorite college or university (for athletic seats or otherwise)? We can work out a plan so that you can meet your charitable giving goals in a tax-wise manner. I offer a free, no-obligation consult, so don’t hesitate to contact me.

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