Gifts

It seems like every day we receive pleas from charities to make donations for their cause.  Some we recognize;  others, well, you may never have heard from them before.  Especially with the topsy-turvy world we have been experiencing with Covid-19, most legitimate charities have noticed a decline in contributions. 

It is sad for those legitimate charities who may suffer because of the fake charities.  The IRS continues to observe criminals using a variety of scams that target honest taxpayers. In some cases, these scams will trick taxpayers into doing something illegal or that ultimately causes them financial harm. These scammers may cause otherwise honest people to do things they don’t realize are illegal, or they prey on their good will to steal their money.

The IRS does investigate when someone reports a scam they have been victim to.  Some of the stories are unbelievable, but unfortunately, people do have the time and creativity to create such scams.  And, when there is a tragedy or a disaster, there is more tugging of heartstrings of people to help the victims – often being unknowingly scammed by a fake charity. 

Many times, these scams come via phone call.  There is pressure for you to give and to give NOW!  The caller may be calling from a number that looks real on your caller ID, but isn’t real. 

Don’t be afraid to ask questions if you get a call.  What is the charity’s exact name, website and mailing address?  And, make certain that they don’t confuse you with a similar name to a well-known charity.  If you are still engaged in the call, tell the caller to call you back in a few days and you will give them your decision.  This will allow you to investigate whether the charity is real or fake. 

If the charity is legitimate, they can provide you with written materials as to their cause which would state that they are an approved charity by the IRS as a Tax Exempt Organization.  It is only a contribution to a qualified charity that a taxpayer can claim the donation as a deduction for income tax purposes.  If you are not certain about a charity, visit irs.gov and search for Tax Exempt Organizations.  All qualified organizations recognized by the IRS will appear.  You may even find an organization that has a cause you believe in, but never knew the organization existed.  Remember, no individual or political donations are deductible. 

Finally, be careful how a donation is made.  If you are asked to wire money or to give via a gift card – heads up that it may be a fake charity.  And, unless and until you are sure that the charity is real, don’t give out your bank account or credit card information. 

You can be generous, but be cautious. 

An occasion – birthday, religious holiday, cultural holiday – is in the near future and you are thinking of gifts that you can give to others.  We surf the internet, go to stores, think of that “perfect” gift, or even perhaps just give in to gift cards, but have you considered giving a gift from the heart?  One that will have more meaning than any material gift you could give. 

So, what is that “perfect” gift?  A Legacy Letter.  You ask “What is a Legacy Letter?”.  It is a letter – a simple letter – to someone you love – children, a spouse, friends, relatives – someone special in your life. 

Now you ask “What do I write about?”.  It can be anything from your heart. If you think you can’t write, try it.  It does not have to be perfect, it only has to be sincere.

Here are some suggestions to get you started:

·         If you are writing to a child or children, sharing the story on paper of how you and their father met, the relationship you had, what is special about the child you are writing to, how they have touched your life.  Share any ancestry information you may know.

·         If you are writing to a spouse, put those loving feelings on paper and how they have enhanced your life.  Let them know the joy that you experienced by becoming a parent with them and how each of your children are special.  Share your dreams or visions of the rest of your life together.

·         If you are writing to a family member or friend, remind them of memorable times spent together, what they mean to you, what you wish for them in the future.

·         Perhaps you have been a part of an organization that has had an impact on your life.  While it may not be as meaningful as a monetary gift, such a letter sharing what your involvement with the organization has meant and how it has affected your life can be very much appreciated.

·         And, here’s a twist; how about a letter to an estranged family member or friend?  It just may mend a fence that has been broken.  While there would be no guarantee that the fence would be mended, at least you would have put forth the effort to try to fix what was broken.

A couple of general thoughts – share your gratitude for the recipient of the letter, share lessons you have learned from the recipient, meaningful words from a song or a poem or a saying. Be genuine, for this letter could be treasured for infinity.

And, the cost; only the gift of the time it took you to write a letter that can last a lifetime, through many generations to come.  A gift from your heart.  Monetary cost – nothing; the value – priceless.

With the Tax Cuts and Jobs Act of 2017, the increased gift and estate tax exclusion amounts are set to sunset in 2025.  The exclusions are $11.2 million in 2018 and will increase each year until 2025, indexed for inflation.  But, what will happen if you make a large gift now?  Will you risk the tax benefit of the higher exclusion level if the exemption decreases after 2025 to the pre-TCJA amount indexed for inflation (or perhaps sooner depending upon any new laws)?

The Treasury Department and the IRS issued proposed regulations to enable individuals planning to make large gifts to do so without concern of losing the tax benefit of the higher exclusion level.

Gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying a credit – formerly known as the unified credit – based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount established in the statute, and other elements (if applicable) described in the proposed regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax.

The TCJA temporarily increased the exclusion amount from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. In 2026, the exclusion amount will revert to the 2017 level of $5 million as adjusted for inflation.

To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased exclusion amount, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the exclusion amount applicable to gifts made during life or the exclusion amount applicable on the date of death.

Stay tuned for more information regarding large gifts and possible impact in the future.

TIS the season of giving and as we near year end, we think of giving gifts not only to those we love, but also to our favorite charities.  You itemize deductions and you want to use the donations to reduce your income tax.  But IS that donation deductible?

Are you aware that only donations to Eligible Organizations are Tax-Deductible?  We all recognize well-known charities like the Red Cross, American Heart, American Cancer, etc.  But, what about the donation you made on Go Fund Me? Is that an eligible charity?

The IRS has a searchable online database tool on IRS.gov that lists most eligible charitable organizations.  Before just assuming the charity is eligible, check out the list.  You don’t want to list a donation and have it rejected by the IRS.

When making donations, get proof of monetary donations.  A bank record or a written statement from the charity is needed to prove the amount and date of any donation of money. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deductions. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

If you have donated property, the deduction amount is normally limited to the item’s current fair market value.  If the value is over $500, an appraisal of the asset to determine the value is required.

Help support a favorite charity while getting a tax deduction.  Both you and the charity benefit.