Qualified charitable distributions (QCDC) allow individuals over age 70 ½ to donate money directly from a taxable IRA without triggering a 10% early withdrawal penalty. This type of contribution is called a “qualified charitable distribution.” A QCDC does not trigger a 10% early withdrawal fee, unlike traditional IRA withdrawals. However, it is subject to income taxes and limits on contributions.

The maximum amount you can contribute each calendar year is limited to $100,000 ($200,000 if married and filing jointly). You must donate within 60 days of turning 70 ½ years old. In addition, you cannot use the funds for personal expenses such as home improvements or college tuition.

Eligibility and Qualified Charitable Distributions

Qualified charitable distributions are particular gifts that allow taxpayers to deduct their gift’s total value without worrying about how much money they spent on it or whether the charity gets taxed on the amount received. They’re often used to help families offset the costs of home improvements, college tuition, and medical expenses.

In prior years, the rules governing QCDs required re-authorization from Congress each fiscal year, and those decisions could be made late in the calendar. As a result, many people waited until the end of the year to ensure they qualified for a QCD.

With the passing of the Protecting America’s Affordable Health Care Act (ACA) or “Obamacare,” the QCD provision is no longer subject to annual re-authorization. Instead, the provision became law as part of the ACA and is now permanently part of the Internal Revenue Service code.

You can plan your charitable contributions and begin reviewing your tax situations early each year. You’ll want to know if you qualify for a QCD before making significant charitable contributions.

If you qualify for a QCD, you’ll receive a 1099 form from the charity indicating your donation amount. If you don’t qualify, you’ll receive a W-2G form from the charity showing what portion of the donation went toward qualifying items.

Tax Benefits of the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides immediate tax breaks for individuals and families impacted by COVID-19. This includes those affected by job loss due to the outbreak, self-employed people whose income drops because of the shutdown, and those who lose wages while working from home. In addition, the law extends unemployment insurance coverage to gig economy workers and expands access to free food assistance programs like SNAP.

Minimum Distributions Suspended

The IRS announced that it is suspending the requirement for people age 70½ to take mandatory withdrawals from their traditional IRAs and Roth IRAs. The move came just days before the deadline for taking those early withdrawals.

This probable relief for many who would’ve had to withdraw money from their retirement account. If you’re one of those folks, don’t worry — you’ll still be able to make gifts from your IRA. But if you’re younger than 70½, you might want to consider making a gift to a Colorado Foundation instead.

New Tax Incentives

The new tax incentives are included in the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act. This bill relieves individuals, families, businesses, and nonprofits during the COVID-19 pandemic.

The $1,200 check you receive will cover basic expenses like food, rent, utilities, and medical bills for most people. However, there are some exceptions. If you qualify for Medicaid or Medicare coverage, you won’t receive a total of $1,200. And if you’re self-employed or work for yourself, you’ll still pay taxes on the money.

But don’t worry about it too much because you can deduct your donations to qualified organizations. So if you donate $500 to charity, you could write off $250.

If you’re eligible for the standard deduction, you can contribute up to $300. If you’re itemizing, you can give away up to $600.

Key Takeaways

Charitable contributions from an individual retirement account (IRA) are qualified charitable distributions. These distributions are treated differently than regular income earned from stocks and bonds. For example, you can deduct up to 50% of your adjusted gross income (AGI) on your federal taxes. However, there are some limitations to contributing to an IRA. Here are three key takeaways about charitable giving from IRAs:

1. You can donate from an IRA without paying taxes. Contributions from an IRA are deductible from your federal taxes. This means that you don’t pay taxes on the money donated. If you donate $5,000 from an IRA to charity, you’ll receive a deduction of $2,500 ($5,000 x.50).

2. Your IRA trustees must report the distribution to the IRS on your tax form. Any contributions to an IRA must be reported on Schedule D of Form 1040, which reports all types of investments held within the IRA. Distributions made from an IRA are reported on Form 1099-R.

3. There are restrictions on how much money can be withdrawn from an IRA each year. For instance, withdrawals are limited based on age. Also, the amount withdrawn cannot exceed what is needed to cover certain expenses like medical costs or college tuition.

Please remember this article is not intended to be tax or legal advice, and you should always consult directly with your tax attorney or tax advisors. You can contact The McGuire Law Firm to speak directly with a tax attorney regarding any of your tax issues.

Form 8283 is a tax reporting form used to report donations to charities. If you donate property valued at $500 or more during the calendar year, you must complete and submit Form 8283 within 30 days of making the gift. This includes cash gifts, securities, life insurance policies, annuities, real estate transfers, and other items.

The IRS requires donors to provide information such as the name of the charity, date of the transaction, type of gift, the value of the gift, and whether the donor received goods or services in exchange for the gift. Donors are required to attach Form 8283 to their tax returns, regardless of whether they claimed a deduction for the contribution on their taxes.

Donations of appreciated assets can qualify for tax deductions under Section 170(e)(3) of the federal tax code. However, donors must still complete and submit Form 8282, even though the asset is already worth more than $5,000. This article has been prepared by a Denver business attorney and Denver tax attorney to discuss charitable contributions. 

The Two Parts of Form 8283

Form 8283 is a two-part form used to report noncash charitable contributions to qualify for an itemized deduction. This form must be filed along with your federal income tax return.

The form consists of two parts. Part one covers contributions valued up to $5,000. If you contribute to property worth more than $5,000, you file part 2 of the form.

Part 1 of the form provides information about the type of gift, the date it was made, and the donee’s name. In addition, section A requires the donor to list the fair market value of each contribution.

Section B is optional and allows donors to report more than $5,000. For example, if you donate stock to charity, you may want to include the total value of the stock in this section.

Charitable Contributions

Noncash contributions are items such as property, artwork, clothing, furniture, books, etc., given to charity. Businesses, organizations, or individuals often donate them. These donations aren’t subject to sales taxes because they don’t go toward purchasing goods and services. Instead, they’re deductible on federal income tax returns.

Section A of Form 8283 requires taxpayers to list the name of the donee organization, the date of the gift, the value of the item(s), and whether it was received directly or indirectly. For example, if you donate a painting to a museum, you’d list the name of the museum, the date of the donation, the value of the painting, and whether it was received “directly” or “indirectly.”

Section B of Form 8283 covers gifts over $5,000. In this section, the donor must provide information about the nature of the gift, including the type of property donated, the property’s fair market value, the payment method, and the date acquired.

For example, if you give $10,000 worth of stock to a nonprofit organization, you’d list the value of the stock, how much you paid for it, and the date you bought it. You’d also indicate whether the gift was made “in one transaction” or “over several transactions.”

The IRS doesn’t require donors to use Form 8283. However, it does recommend that those making significant noncash contributions file the form. To ensure you do, complete Form 8283 for each noncash contribution of $5,000.

Donee Information

The donor organization files this form if it sells, transfers, or disposes donated property. The form must be filed with the IRS within 30 days after the end of the calendar year following the year the donation occurred. Donated property is defined as the property received for public use or benefit. A gift is treated as having been given during the calendar year in which it was transferred.

If you donate property worth over $5,000, you must file Form 8283. The form covers donations of cash, securities, and real estate. You must complete Schedule B even if you don’t owe the property’s value tax.

Where to Find Form 8283

The Internal Revenue Service offers Form 8283, “Sales and Other Dispositions of Capital Assets,” on its website. This form must be completed when selling capital assets such as vehicles, real estate, etc., and includes information about how much money was received and what percentage of the proceeds went toward buying another asset. If you sell stock options, you must use Form 8949, “Reportable Transaction – Sale of Certain Securities.”

Form 8283 Requirements

Form 8283, “Noncash Charitable Contributions,” requires filers to report contributions valued at $250 or more. This includes gifts of cash, stocks, bonds, mutual funds, life insurance policies, annuities, retirement accounts, real estate, and personal property. If you make a gift of property worth less than $500, you don’t have to file Form 8283. But you still need to complete Schedule A, Itemized Deductions, on your federal income tax return.

The IRS allows taxpayers to deduct up to 50% of the fair market value of donated tangible property. For example, if you give away a car, you can claim a deduction equal to half the cost of the car ($5,000).

You can deduct the total donation amount even if you don’t itemize deductions on your taxes. However, if you itemize, you can subtract only those expenses related to the donation.

If you make multiple donations during the same calendar year, you can combine them into one total deduction.

To qualify for the deduction, the donor must establish that the property was given away without expecting to receive anything in return.

A gift recipient may also choose to receive a charitable deduction for the contribution.

Takeaways

Noncash contributions are deductible under Section 170(c)(2) of the Internal Revenue Code. If you donate property, you must file IRS Form 8283 within 30 days of contributing. You cannot deduct the value of certain types of gifts unless you itemize deductions on Schedule A of your federal income taxes. These include:

• Household goods and furnishings valued at up to $500.
• Clothing worth up to $250.
• Books, records, and similar items worth up to $200.
• Artwork, antiques, collectibles, jewelry, musical instruments, sports equipment, tools, and toys worth up to $50 each.
• Donations of vehicles and real estate.
• Charitable contributions of securities, stock, bonds, mutual funds, and insurance policies.

This article was prepared by a tax attorney at The McGuire Law Firm. If you have any questions about charitable contributions, Form 8283, or other tax matters, please contact our firm to speak with a Denver tax attorney.

Gifting to charities can be a great way to obtain a tax deduction on your 1040 individual income tax return.  The gift or donation must be to a qualified charity if you want to deduct the gift.  Gifts given to individuals, politicians and certain organizations cannot be deducted on your tax return.

To deduct the gift, you must file a 1040 individual income tax return and be able to itemize your deductions on a Schedule A.  If you cannot itemize your deductions or would not want to because the standard deduction js greater than your itemized deductions, the gift would not be deducted on your tax return.  The deduction can also be limited if you receive any benefit for your contributions.  You can only deduct the amount of the gift you gave that is in excess of any benefit you may have received for making the gift.

When gifting, if you gift property, the amount you can deduct is generally the fair market value of the property at the time of the gift.  Fair market value can be defined as the amount a willing buyer would pay and a will seller would receive in an arm’s length transaction for the property, on an open market.

If you are deducting more than $500 for non cash gifts, you need to file Form 8283 with your 1040 individual income tax return.  You also must keep records to verify and prove the contributions you have made during the taxable year in which are deducting the gifts or contributions on your 1040 individual income tax return.

If claiming a deduction for cash or property of $250 or more, you will need a written statement from the organization of which you made the donation.  The statement must show the amount you donated and a description of the property.  The statement must also provide information as to any goods, services or benefits you received in return for donating the property.

You can speak with a Denver tax attorney at The McGuire Law Firm regarding any tax questions or issues that you have.  A tax attorney can assist you with many tax matters from personal tax planning to business issues and tax planning.

Contact the McGuire Law Firm to schedule your free consultation with a tax attorney.  Offices in Denver, Colorado and Golden, Colorado.