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Tom and Jane are married, file their taxes jointly and take the standard deduction. In 2020, Tom and Jane gave a total of $500 in cash to their favorite charity. Under the CARES Act, Tom and Jane can deduct up to $300 by using the above-the-line charitable deduction.
In 2021, Tom and Jane decide to double their impact on their favorite charity by donating $1,000 in cash. They will be able to deduct up to $600 of this contribution under the CAA's increased benefit for married couples filing jointly. They will not be able to carry forward the remaining charitable contribution amounts in either year.
In 2020 and 2021, Tom and Jane also contributed $1000 in cash to their donor advised fund (DAF). Their advisor informs them that DAF gifts cannot be counted toward the above-the-line deduction, although DAF gifts are eligible for an itemized deduction.
Daniel is employed as an electrical engineer and expects an AGI of $150,000 this year. In 2021, he receives an inheritance of $1,000,000 in cash from his late aunt's estate. He contributes his entire salary to his favorite public charity to establish a summer camp program for children in need. Due to the increased individual limit, Daniel may deduct this gift in its entirety. Assuming Daniel's $150,000 AGI places him in the 24% income tax bracket, this gift may save up to $36,000 in income taxes.
Three years ago, avid bakers Joseph and Ernest started Bagels, Inc., which is organized as a C corporation. The company has been wildly successful from the start. The company regularly contributes $50,000 in cash each year to support its local food bank. The goal has been to donate approximately 10% of the company's taxable income, which usually reflects the maximum deductible percentage for corporate charitable cash gifts.
This year, Joseph and Ernest have been thankful for a steady stream of business, but they have seen their community particularly impacted by business closures. Bagels, Inc. plans to take advantage of the increased corporate limit by making a generous cash gift to the local food bank of $100,000. Assuming the business' taxable income of $500,000 remains consistent for 2021, Bagels, Inc. could potentially donate up to $125,000 this year and deduct this amount in full.
Tony's Market receives a new shipment of dairy products every other week. The company then donates the remainder of the previous shipment's unexpired dairy products to the local women and children's shelter, a public charity, to stock their food pantry. The shelter provides Tony's Market with written confirmation that the donated dairy products will not be sold or exchanged in any way for value and will only be used to support their purpose of feeding the needy. The donated products must comply with the requirements of the Federal Food, Drug, and Cosmetic Act in effect on the gift date and as applicable for the prior six months.
For its first contribution of 2021, Tony's Market donates 20 gallons of milk. The basis in each gallon of milk is $1 and the FMV is $4. The company's CPA advises that Tony's Market may potentially deduct up to $2 for each gallon donated. This deduction reflects the lesser of twice the basis of each gallon ($1 x 2 = $2) or the basis plus one-half of the expected profit ($1 + $1.50 = $2.50).
The CPA notes that since Tony's Market is organized as a C corporation, it can potentially deduct up to 25% of its taxable income through charitable contributions of food inventory.
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Charitable Gifts of Real Estate – Part II
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