Author Topic: Charitable donation - taxes?  (Read 5009 times)

Jacob1234098

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Charitable donation - taxes?
« on: August 20, 2014, 11:48:48 AM »
I am wanting to give approximately $1,000 to an individual who is really struggling to make ends meet. In my mind, this is a charitable donation, but I have no idea how the government regulates this sort of thing with regards to taxes. Is this type of donation included as a tax deduction? If not, is there another way I can transfer this money to her without tax consequences possibly through other means than a straight cash donation?

Someone with more tax experience than me please respond.

Thank you!


COlady

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Re: Charitable donation - taxes?
« Reply #1 on: August 20, 2014, 12:11:10 PM »
CPA here. No, it's not tax deductible. Only donations to qualified charities (501(c)(3), etc.) are tax deductible.

COlady

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Re: Charitable donation - taxes?
« Reply #2 on: August 20, 2014, 12:12:42 PM »
To answer your second question - not really. If you could donate the money to a charitable entity and then they gave the money directly to him/her then it would be tax deductible.

Cpa Cat

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Re: Charitable donation - taxes?
« Reply #3 on: August 20, 2014, 12:21:48 PM »
I am wanting to give approximately $1,000 to an individual who is really struggling to make ends meet. In my mind, this is a charitable donation, but I have no idea how the government regulates this sort of thing with regards to taxes. Is this type of donation included as a tax deduction? If not, is there another way I can transfer this money to her without tax consequences possibly through other means than a straight cash donation?

Someone with more tax experience than me please respond.

Thank you!

You can't deduct it, but you can gift as a non-taxable event (up to $14,000 per year per recipient). So feel free to give $1,000 to your friend - neither you nor she need to report anything to the IRS. Just don't deduct it.

Trudie

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Re: Charitable donation - taxes?
« Reply #4 on: August 20, 2014, 02:11:09 PM »
CPA here.

The IRS also does NOT allow you to funnel your donation through a qualified charity earmarked for a particular individual recipient and take a deduction.  The charity must have complete control and administration of any donated funds -- regardless of how deserving an individual may be -- for you to be able to deduct it as a contribution on your taxes.

Better to give a gift to your friend tax free under the gift exclusion rules (stated above), but not take a deduction.

dandarc

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Re: Charitable donation - taxes?
« Reply #5 on: August 20, 2014, 02:38:45 PM »
Related question -

I recently became Treasurer of the community orchestra here.  Very small operation.  One thing we do each year is take up a collection from the membership for a gift for our conductors.  The board has discretion as to how to divide the gift.  For the past few years this has amounted to an even split between our two main conductors, but last year there was some discussion of an uneven split, though nothing came of it, and one of the conductors has left for a professorship in another state, so this could get a bit odd this year.  Our conductors are volunteers and do a fantastic job, and this doesn't come close to compensating them for the time investment, but we do what we can.

Are these donations for this honorarium tax-deductible to our members?  I know as treasurer, people will ask me this question.  Seems a bit of a gray area to me - we're not passing it through to a single individual, but a small group of individuals, and the individual member has no say over who gets what.

Trudie

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Re: Charitable donation - taxes?
« Reply #6 on: August 20, 2014, 03:18:03 PM »
My view is that an honorarium is not tax deductible, based on the same logic I outlined above.

It must meet two tests to be deductible:

(1) Given to a qualified charity and
(2) Not set aside for use by a specific person.

In your scenario, the conducter or conductors is still specific enough not to meet the "smell test."  Also, funds expended for gifts/honorariums --from a tax perspective -- aren't in strict keeping with the "mission test" for charitable organizations.

It's a gift... give generously, enjoy it, but it's not deductible.

In the bigger scheme of things there might be ways a qualified charity could set up some sort of endowment fund or something that supports education, for instance, for the conductors or even helps pay their salaries (directly mission-related).  But these are different than "gifts."  You might want to consider that avenue if you would like a tax-advantaged way to give in honor of the directors.

Also, people could choose to give a gift to the orchestra "in honor of" one of the conductors if the funds would then be used to support the mission of the orchestra or its direct operating costs.  But, the funds would not be directly given to the directors as remuneration.


Workinghard

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Re: Charitable donation - taxes?
« Reply #7 on: August 20, 2014, 03:45:09 PM »
We "gift" around 12k a year. We don't itemize so it's not tax deductible. A lot of our giving is to people and families, so it wouldn't count anyway. In some ways it's nice because I don't have to worry about IRS or being audited. I use individuals and creativity to give anonymously.

dandarc

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Re: Charitable donation - taxes?
« Reply #8 on: August 20, 2014, 04:11:04 PM »
My view is that an honorarium is not tax deductible, based on the same logic I outlined above.

It must meet two tests to be deductible:

(1) Given to a qualified charity and
(2) Not set aside for use by a specific person.

In your scenario, the conducter or conductors is still specific enough not to meet the "smell test."  Also, funds expended for gifts/honorariums --from a tax perspective -- aren't in strict keeping with the "mission test" for charitable organizations.

It's a gift... give generously, enjoy it, but it's not deductible.

In the bigger scheme of things there might be ways a qualified charity could set up some sort of endowment fund or something that supports education, for instance, for the conductors or even helps pay their salaries (directly mission-related).  But these are different than "gifts."  You might want to consider that avenue if you would like a tax-advantaged way to give in honor of the directors.

Also, people could choose to give a gift to the orchestra "in honor of" one of the conductors if the funds would then be used to support the mission of the orchestra or its direct operating costs.  But, the funds would not be directly given to the directors as remuneration.

All the more reason for us to figure out a way to get them on the payroll, so-to-speak.  Any issue with the orchestra serving as a hub for this gift?  If the members gave directly to the conductors, then this would certainly not be taxable income to the conductors, but then they might have to deal with ~40 individual checks.  Should I be sending a 1099 on this?

Trudie

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Re: Charitable donation - taxes?
« Reply #9 on: August 20, 2014, 06:31:35 PM »
If the checks are coming from individuals the organization does not need to send a 1099.

You're getting into deeper territory here, though, about what constitutes remuneration to an employee versus and independent contractor and also what is remuneration for services rendered versus a gift.

I would strongly suggest that you find a knowledgeable attorney or CPA locally who could volunteer some time to steer you in the right direction on this, given the detailed facts of your organization's situation.

It is very risky to compensate hired help as independent contractors when they should be classified as employees and could lead to IRS and Department of Labor penalties later on if you are found in violation.  Also, you can run afoul of liability and worker's compensation laws.

I would get someone on your board or in an advisory capacity that can help you with this.

dandarc

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Re: Charitable donation - taxes?
« Reply #10 on: August 20, 2014, 07:20:13 PM »
Thanks for all the help - will probably sit down with someone on my own dime, if we don't have a CPA in our membership.

COlady

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Re: Charitable donation - taxes?
« Reply #11 on: August 21, 2014, 12:29:08 PM »
Thanks for clarifying Trudie. I wasn't suggesting that he donate to a charity and that it be earmarked for the specific individual, I should've been more clear. I really meant that he could donate to a charity that could benefit the individual he's looking to help and then get them in contact with that charity.

frugalnacho

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Re: Charitable donation - taxes?
« Reply #12 on: August 21, 2014, 12:35:16 PM »
I am wanting to give approximately $1,000 to an individual who is really struggling to make ends meet. In my mind, this is a charitable donation, but I have no idea how the government regulates this sort of thing with regards to taxes. Is this type of donation included as a tax deduction? If not, is there another way I can transfer this money to her without tax consequences possibly through other means than a straight cash donation?

Someone with more tax experience than me please respond.

Thank you!

You can't deduct it, but you can gift as a non-taxable event (up to $14,000 per year per recipient). So feel free to give $1,000 to your friend - neither you nor she need to report anything to the IRS. Just don't deduct it.

Don't you also get a $1M lifetime exclusion on top of that yearly limit?

nordlead

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Re: Charitable donation - taxes?
« Reply #13 on: August 21, 2014, 12:57:37 PM »
I am wanting to give approximately $1,000 to an individual who is really struggling to make ends meet. In my mind, this is a charitable donation, but I have no idea how the government regulates this sort of thing with regards to taxes. Is this type of donation included as a tax deduction? If not, is there another way I can transfer this money to her without tax consequences possibly through other means than a straight cash donation?

Someone with more tax experience than me please respond.

Thank you!

You can't deduct it, but you can gift as a non-taxable event (up to $14,000 per year per recipient). So feel free to give $1,000 to your friend - neither you nor she need to report anything to the IRS. Just don't deduct it.

Don't you also get a $1M lifetime exclusion on top of that yearly limit?

The "basic exclusion" (or lifetime limit) is a little over $5m, and so long as you stay under the yearly limit ($14k right now) then you don't dip into the lifetime limit.

frugalnacho

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Re: Charitable donation - taxes?
« Reply #14 on: August 21, 2014, 02:31:33 PM »
The "basic exclusion" (or lifetime limit) is a little over $5m, and so long as you stay under the yearly limit ($14k right now) then you don't dip into the lifetime limit.

But even dipping into the lifetime limit seems like it's not a big deal.  I will never gift 5M in my life time, and I imagine 99.999% of the population will be the same.  In reality with such a huge exclusion anyone could gift anything they wanted and most likely never hit that limit even if they wanted to gift a freakish amount in any given year.

dandarc

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Re: Charitable donation - taxes?
« Reply #15 on: August 21, 2014, 03:08:11 PM »
The "basic exclusion" (or lifetime limit) is a little over $5m, and so long as you stay under the yearly limit ($14k right now) then you don't dip into the lifetime limit.

But even dipping into the lifetime limit seems like it's not a big deal.  I will never gift 5M in my life time, and I imagine 99.999% of the population will be the same.  In reality with such a huge exclusion anyone could gift anything they wanted and most likely never hit that limit even if they wanted to gift a freakish amount in any given year.

Lifetime limit could change significantly - politicians in charge of this and such.  Be sure you did that paperwork right if you do give someone over 14K this year though - gift tax is ridiculous.