Year-End Giving Message No.2: Retirement Plans and IRAs
Retirement Plans and IRAs grow tax-deferred, often becoming quite large over the years. Unlike many other types of investments, funds withdrawn from retirement accounts can be taxable to you and, eventually, to your heirs. Retirement accounts left to your charity are removed from your estate for federal estate tax purposes. Plus, there is no income tax assessed against your estate or your heirs when the funds are transferred to your charity, allowing you to avoid multiple taxes.
Year-End Giving Message No.1: Securities
Gifts of stock and mutual funds are an extremely tax-efficient gifting option.
A gift of highly-appreciated securities offers you two-fold tax savings by avoiding the capital gains tax you’d owe if you sold the stock and ten made the gift.
Making a gift of appreciated stock allows you to take an income tax deduction for the full fair-market value of the stock at the time of the gift, regardless of how much you paid for the shares when you bought them. (Stock should be owned for more than one year to qualify for the tax advantages.).
Gifts of long-term capital gain stock are deductible up to a maximum of 30% of your adjusted gross income.
If you itemize your deductions, you can reduce your taxable income by claiming your donations to qualified charitable organizations. Claim charitable donations on Form 1040, Schedule A. Your donations must go to 1 of these IRS-certified qualified organizations to be deductible:
- Nonprofit religious group
- Nonprofit educational group
- Nonprofit charitable group – The United Way of Guernsey, Monroe and Noble Counties falls in this category.
These groups are often referred to as 501(c)(3) organizations. Donations made directly to needy individuals don’t count as charitable donations.
Money donations are donations made directly to a nonprofit organization using 1 of these payment methods that the United Way accepts:
- Payroll deduction
- Automatic withdrawals from your bank account
If you accept something in return for your gift, you can’t write off the full amount.
If you’re uncertain if the organization you’re donating to is IRS-approved, ask an agency official for the organization’s tax ID number and check IRS Publication 78: Cumulative List of Organizations for names of qualified tax-exempt organizations.
The recordkeeping requirements for donations differ depending on the type and the amount of the donation.
Cash donations of less than $250
To deduct a cash donation, regardless of the amount, you must prove the donation amount with bank records, including:
- Bank or credit union statements
- Canceled checks
- Credit card statements
Bank records must show the organization’s name, the date, and the donation amount. Written records prepared by the donor, like check registers or personal notations, aren’t enough to support charitable donations.
For donations made by payroll deduction, you can prove your donations if you have both of these:
- Document your employer furnishes showing the amount withheld, like a pay stub or W-2
- Pledge card or other document from the organization stating it doesn’t provide goods or services for donations made by payroll deduction
Cash donations of $250 or more
You can claim these donations if the qualified organization gives you a written acknowledgement of the donation that includes all of these:
- Amount of cash contributed
- Statement showing if the organization gave goods or services – other than token items or membership – as a result of the donation
- Description and good faith estimate of the value of goods and services described in the second bullet
You must receive this acknowledgement by:
- Date return is filed for the year the donation is made
- Due date, including extensions, for filing the return