Skip to main content

Insurmountable Wall for 2019 Charitable Contributions?

With recent law changes, the federal standard deduction now exceeds $12,000 for individuals and $24,000 for married couples filing jointly and grows each year with inflation adjustments. With only mortgage interest, state and local taxes, catastrophic medical expenses, and charitable contribution deductions to accumulate, many families and individuals face a seemingly insurmountable wall to exceed the "free" standard deduction and, instead, itemize their own write offs. 

Some have even questioned whether charitable contributions are deductible anymore; however, all is not lost!

MinistryCPA offers four strategies for you to consider as the 2019 calendar year comes to a close.

1. Many state income tax returns do not follow the federal itemized deduction rules. This allows taxpayers to continue gaining a tax benefit for charitable contributions. For example, a Wisconsin taxpayer with $50,000 of Wisconsin income is granted a standard deduction of $6,709 (married filing joint is $14,641). While Wisconsin does not permit a deduction for state and local taxes, for most taxpayers this is a much shorter wall.

2. Taxpayers may consider incorporating an every other year contribution cycle. By bunching contributions heavily in one year and doing the same with deductible state tax payments, taxpayers can significantly beat the standard deduction limit every other year, and on the off year take the generous standard deduction. 

3. Taxpayers with ample cash flow consider funding a donor advised fund (DAF). This option allows donors to make a large, one-time contribution to the custodian of an investment fund that supervises the disbursement of the funds based on advisement from the donor. In the calendar year of the initial contribution to the DAF, the donor takes the deduction. Subsequently, he/she advises the custodian to make charitable contributions out of the fund. For example, a one-time $50,000 DAF contribution could support annual disbursements of $10,000 for five years.  Fidelity Charitable, Charles Schwab, and T. Rowe Price are three of many firms that offer donor advised funds. One caution: some donor advised fund firms will only disburse contributions to charities registered with the Internal Revenue Service. Because churches are exempt from formal registration, a DAF firm may not be willing to process distributions to churches that have not applied for and received a Tax Determination Letter.

4. Taxpayers who have reached age 70½ are eligible to make qualified charitable distributions (QCD) from their retirement funds (e.g. IRAs, company retirement plans). Once taxpayers reach this age, they are required to take annual minimum distributions from their retirement plans (RMDs). Herein lies a problem: the RMD is reportable income that many retirees may choose to turn around and contribute to their favorite charity, but then cannot scale the wall of the generous standard deduction. QCDs allow senior citizens to have their investment companies send contributions directly to their charities. In this case, while no charitable contribution deduction is allowed, neither is the distribution reportable as income. Taxpayers who use QCDs may contribute up to $100,000 annually.

IRS Publication 526 provides additional information regarding DAFs and QCDs.


Popular posts from this blog

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Special Topic: U.S. Olympic Champion Ben Peterson's Autobiography "Road to Gold"

Road to Gold , by Ben Peterson We are privileged to serve our client Ben Peterson and Camp of Champs, the wrestling ministry he founded   and directs. Ben wrestled for more than 16 years, coached on a collegiate level for 28  years, and has directed Camp of Champs for more than 40 years. We have read his autobiography and found Ben's dedication to the sport and his faith to be inspiring. If you are looking for a good story we highly recommend Ben's  Road to Gold. In Road to Gold , Ben shares the lessons he learned throughout his upbringing and how they led him to achieve Olympic victory. Ben states a key element of his youth was the consistency of his parents. He was encouraged to read the Bible every day from an early age, which he now describes as the most stabilizing habit in his life. Throughout his story Ben also emphasizes the importance of confidence, solid goals, hard work, and consistency. These qualities helped Ben throughout his life and wrestling career, from learni

When you don't know what you don't know

Here at MinistryCPA, we recognize that many churches rely on volunteers and/or part-time treasurers and financial secretaries.  With this in mind, we seek to come alongside ministries in providing the much-needed support to ensure that they are operating in a manner that is both compliant with governing authorities and taking advantage of opportunities for improved stewardship of ministry and employer financial resources.  Please consider this brief checklist to determine if your ministry needs to look further into areas that could be classified as “We don’t know if we are compliant.” Please check all compliance requirements that are currently being met: File quarterly Form 941 or annual Form 944 with the IRS Issue Forms W-2 to all employees and File Forms W-2/ W-3 with SSA Ministerial Housing Allowance is only listed in box 14 of the Form W-2 – it is not included in box 1 Obtain Form W-9 from all individuals/businesses that are paid the cumulative total of $600 or more in the year f