Deductions: Charitable Gifts University of California

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While University of California employees think about improving their charitable giving strategies, charitable donation planning can certainly pay off. The charitable contributions have a positive effect on society and also confer tax advantages which must be planned out. So working with an advisor like me, Brent Wolf of The Retirement Group, can help you navigate these opportunities to better align your philanthropic plans with your financial planning, 'Wolf said.'

For University of California employees contemplating charitable giving, understanding what is a deductible donation is critical,' said Sullivan. Strategic charitable contributions impact the community and your tax situation. I represent The Retirement Group and urge clients to use our expertise and resources to match their donations with qualified organizations for maximum societal impact and tax benefits. 

In this article we will discuss:

1. Definition and tax implications of charitable gifts for University of California employees - how to give and what to give to qualified organizations.

2. Types of qualified organizations and criteria for eligibility - defining which contributions are deductible.

3. Guides and limits on charitable contributions based on AGI and how these limits affect deductibility of different donations.

What Is a Charitable Gift?

As a University of California employee, read more about charitable donations. Any cash or property donation to or for a qualified charity is called a charitable gift. Generally a donation is an organization if it is held in a legally enforceable trust for the qualified organization or other similar legal arrangement. And every year Americans give billions of dollars to charity - partly because charitable contributions are tax deductible. If you itemize your deductions, you must make the donation to a qualified organization and not an individual - you can get a tax deduction for the donation. For example, a gift to a single flood victim is not tax deductible whereas a gift to a qualified organization that assists flood victims is generally tax deductible.

Tip: Individuals age 70-1/2 and over can deduct from their gross income qualified charitable Distributions of up to USD 100,000 a year from either a traditional IRA or a Roth IRA, distributed directly to the charity, with the normal charitable deduction limitations.

Tip: You must file Form 1040 and itemize deductions on Schedule a to deduct the charitable contribution.

So what Is a Qualified Organization?

In General

Some of our University of California clients may be asking what constitutes a qualified organization. Some contributions to tax-exempt organizations are not deductible on the federal income tax form. The contribution has to be made instead to a qualified organization. Governing bodies, churches, synagogues, temples and mosques are automatically qualified organizations. The rest of the Organizations must petition the IRS, which lists eligible Organizations through its Exempt organizations Select Check tool on its Web site at  www.irs.gov . But the list the IRS maintains is not exhaustive. There are some qualified organizations for which deductions are not yet listed that are eligible. Those University of California employees want to donate to a charity but are unsure whether it is a qualified organization should contact the charity or the Internal Revenue Service.

FIVE Types of Qualified Organizations:

We also need our University of California consumers to know specific qualified organizations.

First any community chest, corporation, trust, fund or foundation organized or established under the laws of the United States, any state, the District of Columbia or any U.S. territory or possession and operated solely for religious, charitable, educational, scientific or literary purposes or to prevent cruelty to children or animals. This includes the Red Cross, United Way, Salvation Army and National Park Foundation. Veterans' organizations in the United States and its territories, including posts, auxiliaries, trusts, and foundations. Your contribution is tax-deductible if it is used for only charitable, religious, scientific, literary or educational purposes or to prevent cruelty to children or animals. You may also wish to donate to some non-profit cemeteries or corporations, where your donation is not used to maintain a particular gravesite or mausoleum crypt. Any state - the United States or any Indian tribal government or any of its subdivisions - or the District of Columbia, a U.S. possession - if the contribution is made exclusively for public use.

Charitable Contributions in General

Contributions in cash and/or property to or for a qualified organization are generally deductible. You can deduct only a certain percentage of AGI in any given year - see next section. If you receive a benefit from your contribution, you can deduct only the excess of your contribution over the benefit's value.

You can deduct your entire payment to a charity if you get only a token item in return and the charity tells you (1) the item's value is insignificant (2) that you can deduct your entire payment. Pre-2018, you could deduct 80 percent of a payment to a college or university for the right to buy tickets to an athletic event in the institution's athletic stadium as a charitable contribution. No deductions after 2017 are allowed.

Limits on Adjusted Gross Income (AGI)

Deductions Limited To 50 Percent of Adjusted Gross Income (AGI)

No more than 50 percent of your AGI for the year can be deductible as a charitable contribution deduction, though lesser percentage limits may apply depending on the property type and type of organization you donate to. You pay 50 percent of the limit (60 percent for some cash gifts) on contributions you make to qualified public charities or private operating foundations like churches, certain educational organizations, hospitals and some medical research organizations affiliated with hospitals. Most of the organizations can tell you if they are 50 percent limit organizations or not. The 50 percent limit on some cash gifts is now 60 percent for 2018 through 2025 (for cash donations to a public charity that otherwise would be subject to the 50 percent limit).

Deductions Limit: 30 Percent of Adjusted Gross Income (AGI)

You can give only 30 percent of your AGI for the year to organizations that are not subject to the 50 percent limit (see above). Veterans' organizations, fraternal societies, nonprofit cemeteries and certain private nonoperating foundations are exceptions to the 50 percent limit. And we remind our University of California clients that if they make a charitable contribution for the benefit of any organization (e.g., a gift in trust), rather than an outright donation, they can deduct only 30% of their AGI. Any capital gain property donated to an organization subject to the 50 percent limit that would have produced realized long-term capital gains had it been sold also is subject to the 30 percent limit.

Caution: These University of California employees need to understand that this 30 percent cap isn't applicable if you choose to reduce the fair market value (FMV) of the property by the amount representing the long-term gain that would result from selling the property. The 50 percent limit applies here.

Limitations on deductions: 20 Percent of Adjusted Gross Income.

Then we tell these University of California employees that gifts of capital gain property to non-50 percent limit organizations are limited to 20 percent of your AGI.

Unused Charitable Deductions Five-Year Carryover.

University of California employees may also be interested to know that you can carry over contributions you can not deduct in the current year because your AGI limits are exceeded. This amount may be deducted until it is exhausted but not beyond five years. For those years in which the deduction is carried forward, the AGI percentage limitations will be the same as in the year the deduction was first claimed. Thus, contributions this year that were subject to a 20% AGI limitation will be subject to that same 20% AGI limitation if carried forward to a subsequent year.

Caution: For our University of California clients:

special rules apply if you use the standard deduction instead of itemizing in any of the years in which you carry forward unused charitable deductions. So basically your carryover amount must be less than what you would have been able to deduct had you itemized.

Example(s): Jack has USD 50,000 AGI for the current tax year. He gave his church USD 2,000 in cash in August of the current tax year - 50 percent charity. He also sold his church land for USD 30,000 on a basis of USD 22,000. The land was held for investment for more than 12 months. This 30 percent limitation on land donations applies. In addition he gave USD 5,000 of capital gain property to a private non-50 percent charity foundation. The USD 5,000 contribution is 20 percent capped.

Example(s): Suppose Jack computes his charitable contribution deduction as follows: The aggregate charitable contribution deduction can not exceed USD 25,000 (50 percent of USD 50,000). It starts with the cash contribution - Jack gave it away for free. The following are the other charitable contributions in order not to exceed 50 percent of AGI in aggregate:

Contributions by the donor of noncapital gain property to non-50 percent charities up to the lesser of 30 percent of AGI or 50 percent of AGI less all contributions to 50 percent charities. Contributions of capital gain property to charities up to 30 percent of adjusted gross income. 3. Contributions of capital gain property to non-50 percent charities not exceeding the lesser of: (20%) of AGI or (b) 30 percent of AGI less contributions of capital gain property to 50 percent charities.

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Example(s): Jack's donation of land to the church is subject to the special 30 percent of AGI limit described in item 2. It is included at FMV (USD 30,000) for 30 percent limitation application. This means Jack can deduct USD 15,000 (30 percent of USD 50,000 AGI) for the land donation. Unused special 30 percent contribution of USD 15,000 may be carried over to subsequent years. The USD 5,000 contribution to the private foundation is nondeductible because of the limitation in item 3 [(30 percent of USD 50,000 AGI - USD 30,000 contribution of land = 0] and is carried forward to the following tax year.

Example(s): So Jack now has a USD 17,000 tax year deduction (USD 2,000 - USD 15,000). Those aggregate 50 percent limitations were not met. Both carryovers remain subject to the special 30 percent and 20 percent limits, respectively.

But what If You Give Property Instead of Cash?

You usually can deduct the property's fair market value (FMV) at the time of donation to charity. FMV means what a willing vendor pays a willing buyer for the property - both parties know the facts - at FMV. If it has increased in value since you bought it, you may need to adjust the amount of your deduction (this generally happens if you had sold the property and would have recognized ordinary income or short-term capital gain); if that were the case, you could deduct only the amount of FMV above what would have been ordinary income or short-term capital gain had you sold the property). You can deduct its FMV if the property is now worth less. FMV is determined from IRS Publication 561 - Value of Donated Property.

Caution:

We also want these University of California clients to know that you could be subject to a special penalty if you overstate the value of donated property and underpay your tax by more than USD 5,000 because of the overstatement.

You generally can not give away less than your entire interest in a property as a charitable contribution. That usually means contributing some of the right to use your property (which is a percentage of your property interest). Exceptions to the partial interest rule include donating a remainder interest in your property.

For the purposes of calculating your deduction, if you contribute property that is subject to a debt or mortgage, you generally reduce the FMV of the property by any allowable deduction for interest you have paid (or will pay) that is attributable to any period after the contribution. This excludes claiming the same amount as a charitable deduction and an interest deduction.

These University of California customers should know that some categories of property - clothing and household goods - are exempt from donation - as are automobiles, boats and airplanes. For instance, you can not deduct donated clothes or household items unless they are in like new condition or better. Exceptions apply however if you claim more than USD 500 for a single item and include a qualified appraisal with your tax return.

You can only deduct the basis of the property or fair market value if you donate a patent or other intellectual property. You can get additional charitable contribution deductions in the year of the contribution and subsequent years depending on income received from the donated property. You can take additional deductions based on profits from the donated intellectual property only after 12 years. We advise these University of California employees consult an accountant.

CAN YOU DEDUCT YOUR OUT-OF-POCKET Expenses?

Generally speaking, for clients of University of California who have or may incur expenses while performing services for a qualified organization, unreimbursed amounts are allowed to be deducted only if the amount is directly related to the services rendered. As an example, you may deduct the cost and maintenance of uniforms you must wear while performing charitable services if they are not appropriate for everyday use.

You may also deduct car expenses such as petrol and oil if they are directly related to the service you provide with your vehicle and you can prove this in writing. Instead of actual expense deductions, you can use 14 cents per mile as the standard mileage rate. Parking and toll expenses are also deductible. Yet these University of California customers know depreciation and insurance are not deductible.

You can deduct expenses incurred when you travel away from home to serve as a designated representative of a qualified charity if there is no material part reserved for your own enjoyment, recreation or vacation. But that does not prevent having fun while doing charitable work. It does mean that you can't subtract the cost of a Caribbean cruise because you do some minor charitable work on board.

If the charity gives you a daily allowance to use toward covering reasonable travel expenses, you must include in your income the difference between that allowance and your deductible travel expenses. You could still deduct expenses above the allowance. Air, rail or bus transportation, out-of pocket expenses for your car, transportation between the airport or train station and your hotel, lodging and meals are deductible travel expenses.

Which Sort of Contributions Aren't Deductible?

We've discussed what contributions are deductible now, but we wanted University of California customers to know what contributions are not deductible. The following are generally not charitable contributions:

A contribution toward a particular person - you can deduct a contribution toward a qualifying organization that helps the homeless, but not a contribution toward a homeless person You see on the street. Contribution to an unqualified organization - the organization must be an IRS qualified organization. Any portion of your contribution for which You receive or expect to receive a benefit - you can deduct only the excess of your contribution over the benefit's value.

Whenever You pay a charity more than the fair market value of merchandise, commodities, or services, You may deduct the excess amount if You paid it with the intent of making a charitable contribution if the charity tells You (1) the item's value is negligible (2) that you may deduct your entire payment. Your personal expenses - You can not deduct the value of your time or service. Contributions of partial property interests - Your personal expenses - You can not deduct personal, living or family expenses.

Some contributions of partial property interests - you can generally not deduct the transfer of a partial property interest to a qualified organization. Exceptions to this rule include a donation of a resting interest in your personal home or farm, an undivided portion of your entire interest, a partial interest that would be deductible if transferred to certain types of trusts, and a qualified conservation contribution.

Qualified Conservation Contributions

The contribution of a fractional interest in property to charity is generally not deductible. An exception to this is a contribution made to qualified conservation. A qualified conservation contribution is an investment in a qualified real property interest made by a qualified organization for the express purpose of conservation.

Technical Note: Generally speaking, a qualified real property interest is either the entire interest of the donor not including a qualified mineral interest, (2) a remainder interest or (3) a restriction on the use of the real property granted in perpetuity.

Technical Note: Qualified organizations include certain governmental units, public charities which satisfy certain public support tests and certain supporting organizations.

Technical Note: Conservation purposes include (1) preservation of land areas for outdoor recreation by or education of the public; 2) the preservation of an almost naturally occurring environment for fish, wildlife, plants or other similar ecosystems; 3) The conservation of open space including farmland and forest land if its preservation is of great public benefit and for the enjoyment of the general public or in accordance with a clearly defined Federal, State or local conservation policy; (4) preservation of an historically important land area or a certified historic structure.

Qualified conservation contributions of capital gain property generally have the same limitations and carryover rules as other charitable contributions of capital gain property (a related deduction is generally limited to 30% of AGI). But special regulations govern conservation contributions made before the 2014 tax year.

The 30-percent AGI limitation on contributions of capital gain property is not applicable to qualified conservation contributions under the special rules. Instead, individuals may subtract the fair market value of any qualified conservation contribution up to 50 percent (or 100 percent for qualified farmers and ranchers) of AGI less the aggregate deduction for all other allowed charitable contributions. Contributions are not included in determining the amount of other permissible charitable contributions for qualified conservation organizations. Those individuals may carry forward designated conservation contributions over The AGI limit for up to fifteen years.

For some University of California employees who have harbored an international exchange student, the news may be tax deductible as well. Those are qualifying expenses for a foreign or American exchange student if you meet the criteria. The pupil must:

A student who lives in your home as part of a program to educate someone will live there under a written agreement between you and a charity. Not be your dependent or relative. Be a full-time student in grade 12 or lower at a U.S.

Each month the pupil resides with you for up to 15 days you may deduct USD 50 per month. Books and tuition, food & clothes; transportation; medical/dental care; entertainment; and other amounts you actually spent on the student's behalf are eligible expenses. Other home depreciation, lodging and general domestic expenses are not deductible. You may not deduct expenses if the student lives with you as part of a mutual exchange program in which your child lives with a foreign family.

Record Keeping

Cash Contributions

In any case, you must keep a bank record (e.g. canceled check, credit card statement) or a written communication (receipt or letter) from the charitable organization that includes (1) its name, (2) its date of contribution and (3) its amount. For any charitable contribution made through payroll deduction, you must keep a pay receipt, W-2 or other documentation from your employer indicating the date and amount of the contribution, and a pledge card or other documentation from the qualified organization.

For a USD 250 or more contribution deduction, you need a contribution acknowledgment from the qualified organization (or some payroll deduction records). The recognition that:

Must be inscribed Include the amount of cash you donated, whether the organization provided goods or services in exchange for your contribution (and an estimate of their value), and a statement that the only benefit you received was an intangible religious benefit, if such was the case. For any Contribution for which the acknowledgment does not include a date of the contribution, you will also need a bank record or receipt showing the date the contribution was made.

University of California customers must get a receipt with their name, date, organization location and reasonable description of the property to deduct a noncash contribution less than USD 250. Also keep written documentation of each item donated. No written receipt is required where getting one would not be practical (e.g., at an unattended drop-off location).

Noncash Contribution Between USD 250 And USD 500.

Our University of California clients who make a noncash contribution of USD 250 to USD 500 will receive a receipt similar to that for contributions under USD 250 but must also report whether the charity provided substantial goods or services in return for the contribution and a description and good faith estimate of the value of such goods or services. This receipt must be received by the earlier of the date you file your tax return or the filing deadline (extensions included).

Noncash Contribution Between USD 500 And USD 5,000.

Such University of California employees who contribute noncash between USD 500 and USD 5,000 will need a receipt detailing whether the charity provided substantial goods or services in return for their donation and a description and good faith estimate of their value. You also must record how, when and how much you paid for the property. Form 8283 Noncash Charitable Contributions must also be attached to your return.

A Noncash Contribution More than USD 5,000 A Noncash Contribution More than USD 5,000

These University of California customers making a noncash contribution greater than USD 5,000 will need a receipt and records similar to those for noncash contributions of USD 500 to USD 5,000 and also need a written appraisal of the property from an appraiser. These appraisal fees are not deductible as A charitable contribution but may be deducted on Schedule a as miscellaneous itemized deductions relating to the determination of the FMV of donated property.

Technical Note: The IRS defines a qualified appraiser as someone who (1) has earned an appraisal designation from a recognized professional appraisal organization or who otherwise meets minimum education and experience requirements, (2) regularly performs appraisals for which he or she is compensated, (3) can show verifiable education and experience in valuing the type of property for which the appraisal is being made, (4) has not been barred by the IRS from practicing before the IRS during the three years preceding the appraisal, and (5) is not barred by Treasury regulations.

A Non-cash Contribution More than USD 500,000

University of California customers who plan to deduct more than USD 500,000 from a property donation need to submit a qualified appraisal with their tax return. Without the evaluation you can not deduct your donation. This includes cash, inventory, publicly traded stock or intellectual property contributions.

Added Fact:

You can make a qualified charitable distribution (QCD) from your traditional IRA if you are age 70-1/2 or older - and the distribution will not be taxable to you. It's a great way to give back to causes you care about and still reduce your taxable income in retirement. Just remember that the QCD must be paid directly to the charity from your IRA, and that you should speak with a financial advisor or tax professional about your specific situation.

Added Analogy:

Consider charitable giving as spring cleaning for your retirement nest. As organizing your finances and maximizing tax benefits is rewarding, so is tidying up your home. The dusters and brooms are charitable donations - take clutter off your taxable income and do good in society. Look at qualified organizations as trusted custodians who can put your contributions to work for you - helping the poor, supporting education or protecting our natural heritage. As important as selecting what you give away is selecting the right organization. The tax deductions you receive for your charitable gifts are like clean air in your home after a deep clean - it gives you satisfaction and financial security. So grab your financial mop and bucket, meet qualified organizations and help declutter your tax liabilities.

Sources:

1. Internal Revenue Service.  'Qualified Charitable Distributions Allow Eligible IRA Owners up to $100,000 in Tax-Free Gifts to Charity.'  IRS , 16 Nov. 2023,  www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity .

2. Arnott, Amy.  'When Should Retirees Consider a Donor-Advised Fund?'  Kiplinger ,  www.kiplinger.com/article/retirement/t064-c032-s014-when-should-retirees-consider-a-donor-advised-fund.html . Accessed [current date].

3. Adams, Hayden.  'Reducing RMDs With QCDs in 2025.'  Charles Schwab , 13 Dec. 2024,  www.schwab.com/resource-center/insights/content/reducing-rmds-with-qcds .

4. Benz, Christine.  '3 Tax-Friendly Charitable-Giving Strategies for Retirees.'  Morningstar , Nov. 2023,  www.morningstar.com/articles/1043078/3-tax-friendly-charitable-giving-strategies-for-retirees .

5. Benz, Christine.  'Donate Highly Appreciated Assets From Taxable Accounts.'  Morningstar , Nov. 2023,  www.morningstar.com/articles/1043078/donate-highly-appreciated-assets-from-taxable-accounts .