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| Together we can change the lives of the abused, battered, homeless, hungry, ill and less fortunate. |
A donation is a gift given, typically to a cause or/and for charitable purposes. A donation may take various forms, including cash, services,
new or used goods as i.e. clothing, toys, food, vehicles, emergency or humanitarian aid items, and can also relate to medical care needs
as i.e. blood or organs for transplant. Charitable gifts of goods or services are also called gifts in kind.
Donations are gifts given without return consideration. This lack of return consideration means that, in common law, an agreement to
make a donation is an "imperfect contract void for want of consideration. Only when the donation is actually made does it acquire legal
status as a transfer or property. In civil law jurisdictions, on the contrary, donations are valid contracts, though they may require some
extra formalities, such as being done in writing.
In politics, the law of some countries may prohibit or restrict the extent to which politicians may accept gifts or donations of large sums of
money, especially from business or special interest groups.
In countries where there are limits imposed on the freedom of disposition of the testator, there are usually similar limits on donations. The
person or institution giving a gift is called the donor, and the person or institution getting the gift is called the donee.
It is possible to donate in the name of a third party, making a gift in honor or in memory of someone or something. Gifts in honor or
memory of a third party are made for various reasons, such as holiday gifts, wedding gifts, in memory of somebody who has died, in
memory of pets or in the name of groups or associations no longer existing. Memorial gifts are sometimes requested by the survivors (e.g.
"in lieu of flowers, contributions may be made to PISI"), usually directing donations to a charitable organization for which the deceased
was a donor or volunteer, or for a cause befitting the deceased's priorities in life or manner of death. Memorial donations are also
sometimes given by people if they cannot go to the ceremonies.
Charitable contribution deductions for United States Federal Income Tax purposes are defined in section 170(c) of the Internal Revenue Code as contributions to or for the use of certain nonprofit enterprises. See 26 U.S.C. § 170(c).
Contributions to charitable organizations are deductible to the donor, unless the donee organization uses any of its net earnings to benefit a private shareholder, or if it attempts to in any way influence political campaigns or legislation.
A contribution to a charitable organization need not be fully a "gift" in the statutory sense of the word to be deductible to the
donor. However, the donor's allowable deduction will be reduced by the amount of the "substantial benefit" conferred upon her
as a result of her contribution.
To illustrate, suppose that the PISI is hosting a formal dance as a fund-raiser. Further suppose that the fair market value of a
ticket to the dance is 75 USD, and the donor pays 375 USD to purchase a ticket thereto. The donor may claim only a 300
USD deduction, because the amount contributed (375 USD) is reduced by the amount of the benefit that she received (75
USD, the fair market value of the ticket). Bear in mind that this holds true even if the donor does not actually attend the dance.
entitled to deduct her unreimbursed expenses that she incurred in rendering them (except for child care expenses, which are
considered non-deductible personal expenses).
Example
Kim is a professional soccer player who lives in San Diego. She decides to volunteer her time at a PISI soccer camp, located
in Los Angeles for a week. In the ordinary course of things, Kim would charge 10,000 USD for these services, plus costs of
transportation, board, and child care. Assume that Kim's driving costs (gas money, oil change, etc) amount to 150 USD, the
cost of a hotel room for the week is 400 USD, and the cost of child care for her two kids is 500 USD for the week.
Kim is not entitled to deduct the 10,000 USD value of "free services" that she performed. Nor is she entitled to deduct the 500
USD of child care expenses incurred in the week she was volunteering. However, Kim may deduct the 150 USD car
expenses, as well as the 400 USD hotel expenses incurred in her time volunteering at the camp, for a total deduction of 550
USD.
If the donor is contributing cash to the charity, the general rule is that there is only one limitation on the total amount that she is entitled to deduct: She may only deduct her contribution to the extent that it does not exceed 50% of her adjusted gross
income. Any amount not deducted in the year she makes the contribution may be carried forward and taken the next year for
up to 5 years. Ordinary assets and short-term capital gain assets are treated like cash for purposes of the 50 % cap.
Example
To illustrate, suppose that the donor has an adjusted gross income of 100,000 USD. In the year 2004, she gives 60,000 USD
in cash to the PISI. The donor may deduct only 50,000 USD in 2004. Why? Because anything over that amount is in excess of
50% of her adjusted gross income (100,000 adjusted gross income * .50 % = 50,000). The remaining 10,000 USD (60,000
total donation - 50,000 deducted in 2004 = 10,000) carries forward to 2005, at which point she may deduct it.
If the donor is contributing appreciated property, she is entitled to deduct the value of that property on her tax return for that year. Neither she nor the donee organization will pay tax on the appreciation in the property.
As is common in federal income taxation, there are several special rules and limitations that apply:
If the property that the donor is contributing would have produced either only an ordinary gain or a short-term capital gain had she sold it, then she may deduct only her adjusted basis in the contributed property. The taxpayer may not deduct contributions
in an amount greater than 50 % of her adjusted gross income (AGI) in the year of donation. Any excess may be carried forward
for up to 5 years and may be deducted subject to the same limitations.
Example
Kim, our taxpayer, owns a sporting goods store. Her business is doing well so she decides to donate some of last season's
inventory to PISI, a certified charitable organization. Kim's adjusted gross income this year is 700,000 USD. The fair market
value of Kim's donated inventory is 600,000 USD. Her adjusted basis in the inventory is 400,000 USD. If Kim had sold the
inventory, she would have recognized an ordinary gain of 200,000 (fmv of 600,000 USD - adjusted basis of 400,000 USD =
200,000 USD).
To determine the amount that she may deduct as a charitable contribution, Kim must subtract the ordinary gain inherent in the
inventory (the 200,000) from the inventory's fair market value (the 600,000). Thus, the amount of Kim's gift is 400,000 (fmv of
600,000 USD - inventory's inherent ordinary gain of 200,000 USD = 400,000 USD gift).
But remember, Kim may not deduct any contributions over 50% of her adjusted gross income. Recall that Kim's AGI is
700,000 USD. The amount of her gift is 400,000 USD. The result? Since 50% of her AGI equals 350,000 USD (700,000 USD
x .50 = 350,000 USD), Kim may only deduct 350,000 USD of the 400,000 gift in the year that she donated it. However,
assuming her AGI in year two remains at least 100,001 USD, and assuming that Kim makes no charitable contributions in
year two, she may carry over the 50,000 USD (400,000 gift - 350,000 year one deduction = 50,000 carry over) to year two,
and deduct it on her tax return that year.
Charitable donations to public charities and private foundations are subject to overall caps of 50% and 30%, respectively. For example, if a taxpayer contributes cash or short term capital gain property to a public charity, and that cash and property is
greater than 50% of his or her adjusted gross income, then any additionally contribution (including long term capital gain
property) to any charity in that same year can not be deducted.
If a donor is contributing property that would have yielded a long-term capital gain in a sale, then the deduction for the
contribution is limited to 30% of her adjusted gross income in the year of donation if the donee is a public charitiy, and limited
to 20% if the donee is a private foundation. Contributions over the respective AGI thresholds may be carried forward for five
years, and may be deducted in subsequent years pursuant to the same restrictions. This restriction helps certain investors
avoid giving themselves into such a low bracket that the tax value of the donation is impaired.
A trap for the unwary U.S. investor with an asset on which there have been gains in value who contributes the asset before the gains become long-term. The premature gift forfeits deduction of the short-term gains. The asset can be deducted only up to
the amount of its basis, and not up to the amount of its appreciated market value. Only an investor who holds the asset until the
capital gains have become long-term is allowed to deduct the appreciated market value.
I.R.C. 170(e)(1)(A) provides:
(e) Certain contributions of ordinary income and capital gain property
(1) General rule. The amount of any charitable contribution of property otherwise taken into account under this section shall be
reduced by the sum of—
(A) the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the
taxpayer at its fair market value (determined at the time of such contribution).
A further trap awaits the unwary U.S. investor who donates depreciated assets -- assets on which there have been losses in value -- to charity. The gift actually forfeit the tax deductibility of the capital losses, and only the depreciated (low) market value
at the time of the gift is allowed to be deducted, rather than the higher basis. However an investor can instead sell the
depreciated assets before considering a donation. An investor who sells can realize the resultant capital loss, which may then
be deducted under the applicable capital loss rules. The cash proceeds after liquidating the depreciated asset may of course
be donated to charity and deducted following the sale, but the tax advantages of making such donation are no better or worse
than in any cash donation to charity. In any case, such a course leaves the investor more after-tax assets to donate if so
inclined.
new or used goods as i.e. clothing, toys, food, vehicles, emergency or humanitarian aid items, and can also relate to medical care needs
as i.e. blood or organs for transplant. Charitable gifts of goods or services are also called gifts in kind.
Donations are gifts given without return consideration. This lack of return consideration means that, in common law, an agreement to
make a donation is an "imperfect contract void for want of consideration. Only when the donation is actually made does it acquire legal
status as a transfer or property. In civil law jurisdictions, on the contrary, donations are valid contracts, though they may require some
extra formalities, such as being done in writing.
In politics, the law of some countries may prohibit or restrict the extent to which politicians may accept gifts or donations of large sums of
money, especially from business or special interest groups.
In countries where there are limits imposed on the freedom of disposition of the testator, there are usually similar limits on donations. The
person or institution giving a gift is called the donor, and the person or institution getting the gift is called the donee.
It is possible to donate in the name of a third party, making a gift in honor or in memory of someone or something. Gifts in honor or
memory of a third party are made for various reasons, such as holiday gifts, wedding gifts, in memory of somebody who has died, in
memory of pets or in the name of groups or associations no longer existing. Memorial gifts are sometimes requested by the survivors (e.g.
"in lieu of flowers, contributions may be made to PISI"), usually directing donations to a charitable organization for which the deceased
was a donor or volunteer, or for a cause befitting the deceased's priorities in life or manner of death. Memorial donations are also
sometimes given by people if they cannot go to the ceremonies.
 | Charitable Contribution |
| General Statement on Benefit to Donor |
A contribution to a charitable organization need not be fully a "gift" in the statutory sense of the word to be deductible to the
donor. However, the donor's allowable deduction will be reduced by the amount of the "substantial benefit" conferred upon her
as a result of her contribution.
To illustrate, suppose that the PISI is hosting a formal dance as a fund-raiser. Further suppose that the fair market value of a
ticket to the dance is 75 USD, and the donor pays 375 USD to purchase a ticket thereto. The donor may claim only a 300
USD deduction, because the amount contributed (375 USD) is reduced by the amount of the benefit that she received (75
USD, the fair market value of the ticket). Bear in mind that this holds true even if the donor does not actually attend the dance.
| DONATION SUMMARY |
There are many ways that people can support our charitable work. We have a large number of people who help us to raise
money. Our supporters range from individuals to corporate supporters as well as our own staff. Whatever way people decide
to support our work will help will make a real difference for those we care for. Our dedicated Fundraising Team has extensive
experience in supporting a wide range of Fundraising activities and would be more than happy to answer your questions or
help you get your Fundraising off the ground. PISI receives generous support from companies, groups, associations, schools
and legacies.
money. Our supporters range from individuals to corporate supporters as well as our own staff. Whatever way people decide
to support our work will help will make a real difference for those we care for. Our dedicated Fundraising Team has extensive
experience in supporting a wide range of Fundraising activities and would be more than happy to answer your questions or
help you get your Fundraising off the ground. PISI receives generous support from companies, groups, associations, schools
and legacies.
| TYPES OF CONTRIBUTIONS |
The particular tax consequences of a donor's charitable contribution depends on the type of contribution that she makes. A
taxpayer may contribute services, cash, or property to a charity.
If the donor is contributing her services to a charity, she is not entitled to a deduction for those services. She is however,
taxpayer may contribute services, cash, or property to a charity.
 | Services |
considered non-deductible personal expenses).
Example
Kim is a professional soccer player who lives in San Diego. She decides to volunteer her time at a PISI soccer camp, located
in Los Angeles for a week. In the ordinary course of things, Kim would charge 10,000 USD for these services, plus costs of
transportation, board, and child care. Assume that Kim's driving costs (gas money, oil change, etc) amount to 150 USD, the
cost of a hotel room for the week is 400 USD, and the cost of child care for her two kids is 500 USD for the week.
Kim is not entitled to deduct the 10,000 USD value of "free services" that she performed. Nor is she entitled to deduct the 500
USD of child care expenses incurred in the week she was volunteering. However, Kim may deduct the 150 USD car
expenses, as well as the 400 USD hotel expenses incurred in her time volunteering at the camp, for a total deduction of 550
USD.
| Cash |
income. Any amount not deducted in the year she makes the contribution may be carried forward and taken the next year for
up to 5 years. Ordinary assets and short-term capital gain assets are treated like cash for purposes of the 50 % cap.
Example
To illustrate, suppose that the donor has an adjusted gross income of 100,000 USD. In the year 2004, she gives 60,000 USD
in cash to the PISI. The donor may deduct only 50,000 USD in 2004. Why? Because anything over that amount is in excess of
50% of her adjusted gross income (100,000 adjusted gross income * .50 % = 50,000). The remaining 10,000 USD (60,000
total donation - 50,000 deducted in 2004 = 10,000) carries forward to 2005, at which point she may deduct it.
| Property |
As is common in federal income taxation, there are several special rules and limitations that apply:
 | Ordinary Income Producing Property and Short Term Capital Gain Property |
in an amount greater than 50 % of her adjusted gross income (AGI) in the year of donation. Any excess may be carried forward
for up to 5 years and may be deducted subject to the same limitations.
Example
Kim, our taxpayer, owns a sporting goods store. Her business is doing well so she decides to donate some of last season's
inventory to PISI, a certified charitable organization. Kim's adjusted gross income this year is 700,000 USD. The fair market
value of Kim's donated inventory is 600,000 USD. Her adjusted basis in the inventory is 400,000 USD. If Kim had sold the
inventory, she would have recognized an ordinary gain of 200,000 (fmv of 600,000 USD - adjusted basis of 400,000 USD =
200,000 USD).
To determine the amount that she may deduct as a charitable contribution, Kim must subtract the ordinary gain inherent in the
inventory (the 200,000) from the inventory's fair market value (the 600,000). Thus, the amount of Kim's gift is 400,000 (fmv of
600,000 USD - inventory's inherent ordinary gain of 200,000 USD = 400,000 USD gift).
But remember, Kim may not deduct any contributions over 50% of her adjusted gross income. Recall that Kim's AGI is
700,000 USD. The amount of her gift is 400,000 USD. The result? Since 50% of her AGI equals 350,000 USD (700,000 USD
x .50 = 350,000 USD), Kim may only deduct 350,000 USD of the 400,000 gift in the year that she donated it. However,
assuming her AGI in year two remains at least 100,001 USD, and assuming that Kim makes no charitable contributions in
year two, she may carry over the 50,000 USD (400,000 gift - 350,000 year one deduction = 50,000 carry over) to year two,
and deduct it on her tax return that year.
| Long-Term Capital Gain Property |
greater than 50% of his or her adjusted gross income, then any additionally contribution (including long term capital gain
property) to any charity in that same year can not be deducted.
If a donor is contributing property that would have yielded a long-term capital gain in a sale, then the deduction for the
contribution is limited to 30% of her adjusted gross income in the year of donation if the donee is a public charitiy, and limited
to 20% if the donee is a private foundation. Contributions over the respective AGI thresholds may be carried forward for five
years, and may be deducted in subsequent years pursuant to the same restrictions. This restriction helps certain investors
avoid giving themselves into such a low bracket that the tax value of the donation is impaired.
| Short-Term Capital Gain Property |
the amount of its basis, and not up to the amount of its appreciated market value. Only an investor who holds the asset until the
capital gains have become long-term is allowed to deduct the appreciated market value.
I.R.C. 170(e)(1)(A) provides:
(e) Certain contributions of ordinary income and capital gain property
(1) General rule. The amount of any charitable contribution of property otherwise taken into account under this section shall be
reduced by the sum of—
(A) the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the
taxpayer at its fair market value (determined at the time of such contribution).
| Short-Term Capital Loss Property |
at the time of the gift is allowed to be deducted, rather than the higher basis. However an investor can instead sell the
depreciated assets before considering a donation. An investor who sells can realize the resultant capital loss, which may then
be deducted under the applicable capital loss rules. The cash proceeds after liquidating the depreciated asset may of course
be donated to charity and deducted following the sale, but the tax advantages of making such donation are no better or worse
than in any cash donation to charity. In any case, such a course leaves the investor more after-tax assets to donate if so
inclined.
| Parnell Intermediary Services, Inc. 501(c)(3) Nonprofit Public Charity |
INTEGRITY DONOR
| ©2003 - 2011 Parnell Intermediary Services, Inc. All Rights Reserved. |