August 13, 2010
Authored by: Kim Civins
Maybe it’s a little premature, as it’s still summer in most of the country, but as we approach year end, perhaps it’s a good time for a refresher on the charitable donation income tax limitations. Personally, I’m not at the stage of my wealth lifetime where these issues apply to me. However, I aspire to have issues like these to worry about someday. For those of you already there, or for those of you who have clients or donors who are, here is a reminder of the deduction amounts and limitations for gifts of cash to a public charity versus a private foundation.
In general, gifts of cash made to public charities receive the most favored tax treatment. These organizations are generally referred to as “50% charities” because the AGI* percentage limitation for income tax deductions applicable to charitable contributions to these organizations is 50%. These organizations are favored because of their “public” nature. Contributions in excess of the AGI limitation applicable to 50% charities may be carried over for deduction for up to five succeeding tax years. Therefore, gifts of cash to public charities are deductible at full value up to 50% of your AGI, and any overage may be carried over for five additional tax years.
Gifts of cash made to most private foundations receive less favored tax treatment. These organizations can be referred to as “30% charities” because the AGI limitation applicable with respect to charitable contributions to these organizations is the lesser of (i) 30% of the taxpayer’s AGI for the taxable year or (ii) the excess of 50% of the taxpayer’s AGI for the taxable year over the amount of the allowable charitable contributions made to 50% charities. Contributions in excess of the AGI limitation applicable to 30% charities may be carried over for deduction to the five succeeding tax years. Therefore, gifts of cash to a Foundation are deductible at full value up to 30% of your AGI, and any overage may be carried over for up to five additional tax years.
Next week: donations of appreciated assets.
*Technically, “AGI” or “adjusted gross income” is not used for calculation of deduction limitations and an individual taxpayer’s “contribution base” is the more technically correct term. The term “contribution base” means AGI of the taxpayer computed without regard to any net operating loss carry-back to the taxable year. Even though for income tax deductibility purposes, most calculations rely on the “contribution base”, for ease of reference we refer to this amount as AGI, even though this might not result in exactly the same calculation.