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Tag: Charitable Contribution

Charitable Giving

Making a Charitable Contribution

Why sell shares when you can gift them as a charitable contribution? If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.

Donating appreciated securities to a tax-qualified charity may allow you to manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct from your taxable income the fair market value of the stock in the year that you donate. Furthermore, you avoid realizing gains which would likely increase your taxable income and tax bill. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.1

If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any gain you realize, which effectively trims the benefit of cash donation.1

When is donating cash a choice to consider? If you provide the charity with a cash gift, there may be some limitations. Cash gifts are generally deductible up to 50% of adjusted gross income. As an example, if a donor in the top 37% federal tax bracket gives a 501(c)(3) non-profit organization a gift of $5,000, the net may be $3,150 with $1,850 realized in tax savings. A donor should also consider state taxes in addition to federal.2

If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them.1

Remember the tax rules for charitable donations. If you donate appreciated stock to a charity, you may want to review IRS Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law, and be sure to record the deduction on a Schedule A that you attach to your 1040.3

If your contribution totals $250 or more, the donation must be recorded – that is, the charity needs to give you a written statement describing the donation and its value and whether it is providing you with goods or services in exchange for it.4

If your total deduction for all non-cash contributions in a tax year exceeds $500, then complete and attach Form 8283 (Noncash Charitable Contributions) to your 1040 when filing. If you donate more than $5,000 of property to a charity, you will need to provide a letter from a qualified appraiser to the charity (and by extension, the IRS) stating the monetary value of the gift(s).4

Gifting cash or other assets to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there’s a possibility that the current rules may change. Make certain to consult your tax and legal professionals before starting a new gifting strategy.

To learn more about CapSouth Wealth Management and the services we provide, contact us at 800.929.1001 or www.capsouthwm.com/contact or visit our website at www.CapSouthWM.com

  1. Forbes.com, December 1, 2020
    2. IRS.gov, December 7, 2020
    3. IRS.gov, February 18, 2021
    4. IRS.gov, March 12, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm.  CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

Tax News and Updates

By: P. Lewis Robinson, CPA

1. Due Date of 2020 Federal Income Tax Returns:

  • The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. The IRS will be providing formal guidance in the coming days.
  • Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021 to May 17, 2021 without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest, and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17, 2021.
  • Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until October 15, 2021 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15, 2021 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021 to avoid interest and penalties.
  • This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by individuals whose income is not subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have taxes withheld from their paychecks and submitted to the IRS by their employer.

2. State tax returns:

  • The federal tax filing deadline postponement to May 17, 2021 only applies to individual federal income returns and tax payments (including tax on self-employment income); it does not apply to state tax payments or deposits or payments of any other type of federal tax. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.

3. Up to $10,200 of 2020 unemployment compensation per worker may be tax-free:

  • Section 9042 of the American Rescue Plan includes another potential benefit for individuals who received unemployment compensation for all or part of 2020. More specifically, if a taxpayer’s AGI is less than $150,000, then up to $10,200 of unemployment compensation received in 2020 may be tax free.
  • There are, however, a number of important nuances to consider with respect to this provision, including the following:
  • It appears that the $150,000 AGI limit applies uniformly to all filing statuses.
  • It appears that the $150,000 AGI limit is a true cliff threshold: the American Rescue Plan appears to indicate that a taxpayer with $149,999 of AGI can exclude up to $10,200 of unemployment compensation from their gross income; however, if that taxpayer earns just a single dollar more and has $150,000 of AGI, the full amount of the unemployment compensation received in 2020 will be taxable.
  • It appears that, in the case of joint filers, each spouse can receive up to $10,200 of unemployment compensation tax-free, permitting up to $20,400 for the household (as long as the household remains below the $150,000 AGI limit).
  • The $150,000 AGI limit includes all unemployment compensation. Under this provision, determining a taxpayer’s actual AGI involves a bit of a circular calculation. That’s because, in order to determine whether the taxpayer is eligible to exclude up to $10,200 of 2020 unemployment compensation, that compensation must first be included in an initial AGI calculation!

4. Extension and expansion of the above-the-line charitable deduction 2021:

  • For 2021, there is a $300 above-the-line charitable deduction for single filers who do not itemize deductions.
  • For 2021, this above-the-line deduction increased to $600 for married couples filing jointly who do not itemize tax deductions.
  • As in 2020, this deduction applies only to qualified cash contributions and does not apply to cash contributions made to private foundations, donor advised funds or supporting organizations, or to split interest trusts like charitable remainder and lead trusts. It also does not apply to carry-over contributions.

5. Extension of the charitable contribution limitation:

  • The temporary suspension of the 60 percent charitable contribution deduction limitation has been extended into 2021 for qualified cash contributions.
  • In 2021, individual taxpayers who itemize tax deductions and who contribute cash to a public charity, or to a limited number of private foundations, may deduct up to 100 percent of their adjusted gross income after taking into account other contributions subject to charitable contribution limitations.
  • Individual taxpayers can continue to carry forward any excess charitable contributions for five years, but the enhanced 100 percent deduction limitation expires after 2021.

To learn more about CapSouth, visit our website at www.capsouthwm.com

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

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