What seems charitable may not always be deductible in the eyes of the IRS

What seems charitable may not always be deductible in the eyes of the IRS

With such a wide range of options available for you and your family to support your favorite causes and your community, ranging from crowdfunding to online solicitations, how do you know whether (and why) your donations are eligible for funding out of your account at The Community Foundation?

In short, contributions to organizations and causes that would fall into the non-tax-deductible category, although worthy investments to help the community, generally are not eligible recipients of grants from your funds at The Community Foundation. Remember, you received a tax deduction when you transferred assets to your fund at The Community Foundation, which means the money needs to be distributed to charitable organizations and causes qualified to receive tax-deductible contributions.

If you’re interested in the legal background, keep reading!

Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt, meaning they don’t pay taxes. This is a status for which an organization must seek IRS approval.

Even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. To qualify specifically under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, the recipient organization must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” In other words, “charitable,” according to the IRS, has a very specific definition. Your funds at The Community Foundation help you support the 501(c)(3) charitable organizations you and your family care about.

Separate from your charitable donations, perhaps you and your family also support social welfare groups (organized under Section 501(c)(4) of the Internal Revenue Code). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (e.g., gifts to volunteer fire departments and veterans organizations). Your fund at The Community Foundation can’t be used to support non-tax-deductible civic causes, but certainly you can continue supporting these causes out of your personal assets.

Similarly, chambers of commerce and other business leagues fall under Internal Revenue Code Section 501(c)(6); donations to these entities are not tax deductible, either.

In addition to your civic activities, perhaps you’ve also helped set up a dedicated account at a bank to provide scholarships to the children of an accident victim, or even participated in a GoFundMe fundraiser to help a specific family. These vehicles, along with other crowdfunding platforms, typically do not meet the qualifications for a charitable organization under Section 501(c)(3), usually because the funds are earmarked for a particular person or persons.

We know the rules are complex and can be overwhelming! If you have any questions about the tax deductibility of your contributions to various organizations, and whether your community foundation funds can be deployed to make the contributions, please reach out to the team at The Community Foundation. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules.

The team at The Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. We also encourage you to consult your tax or legal advisor to learn how this information might apply to your own situation. 

Call us any time from 9am to 5pm Monday through Friday at 540-432-3863 for questions. www.tcfhr.org

 

Is the cost of event tickets tax deductible?

Is the cost of event tickets tax deductible?

As charitable organizations emerge from pandemic restrictions, in-person fundraising events are beginning to rebound, especially athletic events that are held outside. This is a good time for a quick refresher course on the charitable deduction rules related to events, which can be tricky.

As a general rule, if you purchase a ticket to a fundraising event and attend the event, the IRS only allows a tax deduction for the portion of the ticket price for which you received nothing of tangible value in return. So, when the charity sends a receipt for the gift, you will see that the charity has subtracted the fair market value of the perks–food, beverage, entertainment, T-shirts, and other goodies–from the full amount of the contribution. The rules for raffles, auctions, and games of chance are also complex, exacerbated by the increase in virtual events and online fundraisers.

What’s the reason for all of this complexity? Simply put, tax-deductible dollars cannot be used for private benefit. The point of the charitable tax deduction is to incentivize taxpayers to use their own money to help others. Even when a portion of a donation can be tied to funding the charity’s programs, the intermingling of event-related benefits back to the donor (even if it’s just a T-shirt or a dinner) becomes too much of a tangled web, in the IRS’s view, to discern the true amount of the charitable deduction, and without that clarity, none of it is deductible.

The good news here is that the team at The Community Foundation is on top of it. We are here to answer your questions about tax deductibility and how to help the charities you care about.

Call us any time from 9am to 5pm Monday through Friday at 540-432-3863 for questions. www.tcfhr.org

 

Summer legislative updates–and looking ahead to sunsets

Summer legislative updates–and looking ahead to sunsets

Reconciliation legislation is back in play, and includes a few tax provisions (e.g., adding a corporate minimum tax and eliminating the carried interest tax break). Notably, though, the proposal includes $80 billion in budget increases for the Internal Revenue Service, which will help shore up the IRS’s expertise and pay for enforcement efforts to collect taxes.

Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions.

While potential tax reform through budget reconciliation legislation may be top of mind for taxpayers and advisors, it’s also important to remember that the Tax Cuts and Jobs Act of 2018 (which seems like a long, long time ago!) included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies. In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range.

As your clients begin to set their philanthropic goals for the next several years, the team at The Community Foundation is happy to help structure long-term strategies to maximize not only your clients’ tax benefits, but also the benefits to the community. Our professionals are deeply familiar with the short-term, mid-term, and long-term needs of our community, as well as the nonprofits that are working to address those needs. Our experienced team works with you to help your clients support community needs now and in the future through clients’ donor-advised funds, field of interest funds, designated funds, and other vehicles established at The Community Foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support to improve our community, and you in your trusted role as the client’s advisor.

Learn more at www.tcfhr.org, email Revlan at [email protected], or give us a call at 540-432-3863.

 

Virginia Education Improvement Scholarship Tax Credit Program

The Virginia Education Improvement Scholarship Tax Credit program can offer support for thousands of low and middle-income families in Virginia.  The program offers opportunity for Virginia families to send their children to a school of their choice using private scholarships from scholarship foundations. The Community Foundation of Harrisonburg & Rockingham County is an approved VDOE Scholarship Foundation.

 

The Education Improvement Scholarships Tax Credit program offers a 65 percent state tax credit on top of current state and federal tax deductions for monetary and marketable securities donations to approved scholarship foundations that, in turn, provide private school scholarships to poor and working class students.

 

The minimum donation is $500 per year. The maximum donation for individuals is $125,000. There is no limit for business donations.

 

For the year of the donation, donors may take a credit against Virginia taxes equal to 65 percent of the donation, as well as a deduction against their net income as a charitable donation on both their federal and state income taxes.

 

The preauthorization application process for VDOE state tax credits is easy and The Community Foundation can help. Learn more about the program and how you can support local K-12 education and earn a 65% state tax credit in the process.

 

Contact Ann at The Community Foundation at [email protected] or 540-432-3863.

Learn More About a 65% Virginia State Tax Credit Opportunity

The Virginia Department of Education (VDOE) Tax Credit Program is a way to support educational opportunities for local students and receive a 65% Virginia state tax credit on top of current state and federal charitable deductions. These state tax credits may be used in the tax year they are issued.

 

This program is similar to NAP credits, but is for individual or business donors interested in supporting scholarships at private K-12 schools in Virginia. Donations provide scholarship funds to support students of families that meet financial need criteria. The credits may not exceed the tax liability, but can be carried over for five succeeding years.

 

This year, the state has authorized up to $25 million in Education Improvement Tax Credits. The credits are readily available, but December 14th is a critical deadline to get this done for calendar year 2016 tax filings. It takes up to 2 weeks to receive the authorization allowing the taxpayer to make a qualified donation. Please note that donation checks may not be written before authorization is received.

 

The Community Foundation of Harrisonburg & Rockingham County is an approved scholarship foundation for the Virginia Department of Education (VDOE). Our staff will be glad to help you work through the process, and we can expedite application for these credits by sending forms electronically to the state. Program details and the Preauthorization Form can be found on the Virginia Department of Education website.

 

Please contact Ann at 540-432-3863 or [email protected], if you have questions regarding this program, or if The Community Foundation staff can be of assistance in any way.

Community Foundation office closing early on Dec. 31

The Community Foundation of Harrisonburg & Rockingham County will be closing its office early on Thursday, December 31, 2015. Our office hours for the remainder of 2015 are as follows:

Tuesday, December 29                 9:00AM – 5:00PM

Wednesday, December 30           9:00AM – 5:00PM

Thursday, December 31               9:00AM – Noon

Friday, January 1                          Closed

 

We appreciate your investment in our community and are most grateful for your support of our work during the past year. We look forward to working with you in 2016 as we ‘Dream. Share. Build. OUR COMMUNITY.’

It’s not too late to earn Virginia State Tax Credits!

 

It’s not too late to earn Virginia tax credits in 2015!!  The Virginia Education Improvement Scholarships Tax Credit Program is a way to support educational opportunities for local students and receive a 65% Virginia state tax credit on top of current state and federal charitable deductions. These state tax credits may be used in the tax year they are issued.

This program is similar to NAP credits but is for individual or business donors interested in supporting scholarships at private K-12 schools in Virginia. Donations provide scholarship funds to support students of families that meet financial need criteria. Donors may not specify a specific school or a specific student to support. The credits may not exceed the tax liability, but can be carried over for five succeeding years.

This year, the state has authorized up to $25 million in Education Improvement Tax Credits. The credits are readily available, but The Community Foundation must submit all preauthorization requests in order for donors to receive the tax credits for calendar year 2015 tax filings.  Authorization approval from VDOE must be granted before a taxpayer to can make a qualified donation. Please note that donation checks may not be written before authorization is received. 

The Community Foundation of Harrisonburg & Rockingham County is an approved scholarship foundation for the Virginia Department of Education (VDOE). The Community Foundation staff will be glad to help you work through the process and we can expedite application for these credits by sending forms electronically to the state. Program details can be found, along with the Preauthorization Form, on the VDOE website at http://www.doe.virginia.gov/school_finance/scholarships_tax_credits/.

Please contact Ann Siciliano at 540-432-3863 if you have questions regarding this program, or email a completed preauthorization form to [email protected] .