Nonprofits across the suburbs are bracing for the effects of the federal tax overhaul, hoping people will continue to make
charitable contributions in 2018 even though fewer taxpayers are expected to itemize deductions next year.
A recent Tax Court memorandum decision dramatically demonstrates two important points about
charitable contributions: 1) the
charitable contribution deduction rules are highly complicated and full of traps for the unwary, and 2) the IRS strictly interprets and applies those rules, especially with respect to significant noncash charitable donations.
In determining which
charitable contributions are deductible in a given tax year, current-year contributions take priority over carryover contributions.
Issues contributing to noncompliance included a lack of proper attached forms; incorrectly completed Forms 8283, Noncash
Charitable Contributions, or those with incorrectly reported items; and unclear descriptions of donated property (see related graphic, "Noncash
Charitable Contribution Errors Remain High").
After a two-year drop in
charitable contributions brought on by the Great Recession, donations from individuals, corporations and foundations have rebounded according to Giving USA Foundation, an organization that tracks philanthropy through research and education.
Percentage increase in
charitable contributions to American universities between 1997 and 2007: 6.
Charitable contributions are generally fully deductible as long as your itemized deductions exceed the standard deduction and you don't surpass statutory limits--50%, 30% or 20% of your adjusted gross income (AGI), depending on what you donate and whether the recipient is a public charity on an operating or non-operating foundation.
Adjusted gross income limitations on the amount of
charitable contributions allowed as an itemized deduction.
Worse, because we do not make our
charitable contributions part of the larger financial plan tied to our wealth-building objectives (including tax strategies), we often end up with little or no income for intentional, strategic giving.
The federal government is now withdrawing its support largely because of the new
charitable contributions rules.
While philanthropy continues to be important to our communities, a provision in a recently passed law may make
charitable contributions even more pervasive.
The legislation, similar to the recently passed Senate CARE Act, would expand charitable resources by providing Americans who do not itemize on their tax returns the opportunity to deduct a portion of their
charitable contributions; providing incentives for individuals to make tax-free contributions to charity from their individual retirement accounts; raising the cap on corporate
charitable contributions from 10 percent to 20 percent; and reauthorizing a program to allow low-income, working Americans to build assets through matched savings accounts.
