Question

Investor who earns $80,000 per year has a stock and bond portfolio worth about $100,000. Some of her investments have substantially appreciated in value and some have declined in value. Investor generally makes several charitable gifts to her church and her college alma mater.

1) From a planning perspective, what advice do you have for Investor?

2) What are the tax consequences if Investor is 73 years old and if some of the stock and bonds given are in Investor’s Individual Retirement Account (I.R.A.)? See §408(d)(8)

Answer 1

1) From a planning perspective, the following points should be considered:

1. Charitable contributions made to qualified organizations may help lower your tax bill. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. Refer IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
3. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
4. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
5. To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
6. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

2) The following will be the tax consequences if investor is 73 years old and some of the stocks and bonds given are in IRA:

1. any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72

2. Special rules for applying section 72For purposes of applying section 72 to any amount described in paragraph (1)—

   (A) all individual retirement plans shall be treated as 1 contract,

   (B) all distributions during any taxable year shall be treated as 1 distribution, and

   (C) the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins.

   For purposes of subparagraph (C), the value of the contract shall be increased by the amount of any distributions during the calendar year.

3. (A) In general Paragraph (1) does not apply to any amount paid or distributed out of an individual retirement account or individual retirement annuity to the individual for whose benefit the account or annuity is maintained if—

   (i) the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or

   (ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).

   For purposes of clause (ii), the term “eligible retirement plan” means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B)