Five of 2022’s most-asked questions about Qualified Charitable Distributions

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Five of 2022’s most-asked questions about Qualified Charitable Distributions

 

Qualified Charitable Distributions, or “QCDs,” are becoming a very popular financial and charitable planning tool. At the same time, QCDs are growing as the source of more and more confusion.

Here are answers to the questions most frequently asked this year by both advisors and donors. Be on the lookout for these and other client questions, and please do not hesitate to reach out to The Community Foundation for assistance.

“Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?”

Short answer: Almost.

Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free.

“What is the difference between a QCD and an RMD?”

Short answer: Quite a bit! But a QCD can count toward an RMD.

Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 72. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.

“Can I make a Qualified Charitable Distribution even if I am not yet required to take Required Minimum Distributions?” 

Short answer: Yes–within a very narrow age window.

Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs).

The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication.

“Can I direct a QCD to my fund at The Community Foundation?”

Short answer: Yes, if it’s a qualifying fund.

Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at The Community Foundation can receive QCDs. These funds include designated funds, unrestricted funds, field-of-interest funds, and scholarship funds.

“How much can I give through a QCD?” 

Short answer: $100,000 per year.

Long answer: A Qualified Charitable Distribution permits you (and your spouse from your spouse’s own IRA or IRAs) to transfer up to $100,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, as a married couple, you and your spouse may be eligible to direct up to a total of $200,000 per year to charity from your IRAs and avoid significant income tax liability.

Questions? Call us at 540-432-3863 or email Kristin Coleman at [email protected].

 

It’s a big deal: Answering clients’ questions about GivingTuesday

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It’s a big deal: Answering clients’ questions about GivingTuesday

Among the many client questions you and other attorneys, accountants, and financial advisors can be prepared to answer as year-end approaches is, “What is Giving Tuesday? And why the hashtag that often precedes it in print or online?”

Giving Tuesday–or “GivingTuesday” to be more accurate–has become a philanthropic phenomenon of sorts, generating support and enthusiasm from a wide range of people and institutions. Many of your clients are likely reading about GivingTuesday in the media, especially after the Gates Foundation recently announced its $10 million gift to support the effort.

Celebrating 10 years in 2022—and vastly different from both the Black Friday and Cyber Monday that it follows—GivingTuesday is a day of generosity. Generosity of time, effort, money, concern or any other well-intended act of giving.

Facts about GivingTuesday:

  • Started in 2012.
  • More than a day, GivingTuesday is a movement and an organization.
  • Founded at New York’s 92nd Street Y and celebrated globally.
  • Falls on the first Tuesday following Thanksgiving, always.
  • Though not strictly a fundraiser, money “moved” has grown from $28 million in 2013 to $2.7 billion in the U.S. in 2021.

Clients typically get involved in GivingTuesday by supporting their favorite charitable organizations. Many nonprofits promote GivingTuesday as an important source of funds for their organizations, and they frequently encourage their donors–your clients–to give via cash, check, online or even via cryptocurrency. Your clients also can participate in GivingTuesday by recommending grants from their donor-advised funds to favorite organizations.

Far beyond simple acts of benevolence, GivingTuesday is steeped in the idea of “radical generosity,” which the organization describes as giving to create systemic change, or to “recognize that we each can drive an enormous amount of positive change by rooting our everyday actions, decisions and behavior in radical generosity—the concept that the suffering of others should be as intolerable to us as our own suffering. Radical generosity invites people in to give what they can to create systemic change.”

Beyond monetary donations, systemic change comes from participating in activities like social media advocacy (the # in #Giving Tuesday that creates ripple-effect awareness online), sharing love, spreading kindness, supporting a food pantry, shopping local or hosting a food or coat drive.

To help clients learn more or get answers to additional questions about GivingTuesday, please reach out to The Community Foundation. Our team welcomes your call!  Call us at 540-432-3863 or email Kristin Coleman at [email protected].

 

The perfect plate: Turkey, pumpkin pie and charitable giving

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The perfect plate: Turkey, pumpkin pie and charitable giving

As you prepare to gather with family and friends over the Thanksgiving holiday, we invite you to reach out to the team at The Community Foundation for suggestions on how to incorporate charitable giving into the festivities.

For example:

  • Take this opportunity to brush up on the rich history of charitable giving in America.
  • Consider asking each family member to conduct quick research on a community need that they feel strongly about, such as homelessness, early childhood education, preserving the environment, medical research, and so on. Even just 15 minutes of online research on how the issue is playing out locally can be eye-opening!
  • When your family is together, each person can briefly share what they found in their research. If the group feels strongly about one or two issues, you might consider pooling donations–whether $5 per person or $50.
  • Contact The Community Foundation to find out which nonprofit organizations in the community are most closely aligned with addressing the issues you’ve selected. Make your family donation to those organizations.

Thanksgiving is also a good time to start planning for year-end charitable giving to meet your philanthropic goals. For instance:

  • Making gifts of cash or appreciated stock to your donor-advised fund at The Community Foundation can help you streamline your charitable giving recordkeeping and still allow you to support your favorite charities with year-end gifts. If you’ve not yet established a fund at The Community Foundation, we’d love to help you set that up. There is still plenty of time to put it in place to meet your year-end tax planning and charitable giving needs.
  • If you are over the age of 70 ½, consider making a Qualified Charitable Distribution (QCD) from your IRA to one or more qualifying charities, which include an unrestricted or field-of-interest fund at The Community Foundation. QCDs, available up to $100,000 annually per taxpayer, are an excellent way to bypass required minimum distributions and the corresponding income tax liability.
  • Many families update their estate plans around the holidays. If you’re planning to review your wills and trusts, it’s a great time to check in on any bequests and adjust those provisions, especially if you’ve recently established a donor-advised or other type of fund at The Community Foundation and intend for part of your estate to flow into those vehicles.

As always, please contact The Community Foundation for charitable giving inspiration and insights. We are here to help! Call us at 540-432-3863 or email Kristin Coleman at [email protected].

 

Give a little and feel a lot better

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Give a little and feel a lot better

In the classic book The Go-Giver: A Little Story about a Powerful Business Idea, authors Bob Burg and John Mann share how Joe, a young professional, uses unselfishness to ultimately find business success.

Among the philosophies:

–Your true worth is determined by how much more you give in value than you take in payment.

–Your income is determined by how many people you serve and how well you serve them.

On a personal level, we’ve all heard the adage, and to paraphrase, “It’s better to give than to receive.” Two often-cited benefits of giving are (a) that it makes you happy, and (b) it makes you healthier and live longer.

These benefits can be experienced through small gestures, like opening a door for a stranger; surprising the next-in-line at the drive through with a free cup of coffee; or checking on a neighbor before or after a storm.

Volunteering is another source of happiness and health enhancement. According to the University of Maryland Health System, volunteering can bring physical and behavioral health benefits including a broader social network, lower blood pressure (which can reduce risk factors associated with heart disease and stroke), improved mental health and stress relief.

By doing good, we feel better ourselves.

In many ways, interestingly enough, your community foundation can be a facilitator of health benefits. By helping to establish, manage and distribute your gifts of generosity to the causes you care about, The Community Foundation can simplify the giving process to your favorite organizations that power medical innovation, support equipment acquisitions and fund construction at university health centers, hospitals, and blood banks, as well as the many important services delivered by community health providers.

Quite notably, many generous and significant gifts received by health centers in 2021 referenced family foundation involvement. Among those facilities are Cedars-Sinai Health System (Los Angeles, CA); Atrium Health (Charlotte, NC); Wolfson Children’s Hospital (Jacksonville, Fla.) and Saint Barnabas Medical Center (Livingston, N.J.).

By giving through The Community Foundation, whether to an unrestricted fund, field-of-interest fund, or a donor-advised fund, and whether to health-related charitable organizations or others, a donor’s gifts to charity can go above and beyond simply meeting individual or family tax and giving goals. By serving those in need and the greater good, gifts to charity help others feel happier and healthier—donors and recipients alike.

Call us at 540-432-3863 or email Kristin Coleman at [email protected] for any questions on charitable giving.

 

Counseling your clients about nonprofits: The good, the bad, and the big leaps

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Counseling your clients about nonprofits: The good, the bad, and the big leaps

 

The nonprofit sector accounts for more than 12 million jobs in the United States, and job growth in the nonprofit sector in recent years has outpaced job growth in the private sector. As an advisor, you are more likely than ever to represent clients who hold executive positions at nonprofits, serve in key roles on nonprofit boards of directors, or do business with nonprofit organizations.

Please reach out to The Community Foundation as a resource when questions about nonprofit matters arise in your client discussions. Here are three examples of the types of issues that come up in the nonprofit arena:

 

–The good: The application process for exempt status has improved dramatically in recent years, thanks to IRS enhancements to its Form 1023. This is important for you to know when you are advising clients who are involved with a new charity. For those familiar with the application process, the new Form 1023 was a huge win and a major IRS accomplishment.

 

–The bad: Watch out for exempt status issues. At the heart of a nonprofit’s favored tax treatment is the concept of “exempt purpose”–meaning, essentially, operating for the public good, not to further private interests. For charitable entities organized under Internal Revenue Code Section 501(c)(3), exempt status is crucial for an organization to remain exempt from paying income tax. Exempt status under Section 501(c)(3) also allows contributions to the organization to be eligible for income tax deductions (as well as estate and gift tax deductions).

 

–The big leaps: The nonprofit sector, powered by private philanthropy, can be, and has been, transformational for our society. If you’ve not spent some time reading up on the major societal changes that have their roots in the nonprofit sector, you might consider doing so. As always, the team at The Community Foundation would welcome an opportunity to provide big picture background and inspiration to support the ongoing service you provide your clients who are involved in the nonprofit sector.

 

The team at The Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients.

 

Bright spots in the midst of economic challenges

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Bright spots in the midst of economic challenges

Bear markets aren’t much fun for anyone. But that doesn’t mean your charitable giving commitments have to be put on hold. If you are like many donors, you are still looking for ways to support the organizations you care about that rely on your support to achieve their missions.

Remember, not every stock is down. It’s still incredibly tax-efficient to donate highly-appreciated stock to your fund at The Community Foundation. When you give appreciated stock held for more than one year (a long-term capital asset) to your donor-advised or other type of fund, instead of selling it outright, the capital gains tax is avoided. Plus, marketable securities are typically deductible at their fair market value, further helping your overall income tax situation.

Don’t forget about the Qualified Charitable Distribution (QCD), either. If you’ve reached the age of 70 ½, the QCD is an elegant and effective planning tool. You are still required to take Required Minimum Distributions (RMDs) from your IRA even in a down market, and the QCD can help offset this tax hit by allowing you to direct up to $100,000 to a qualified public charity, including a field-of-interest fund or unrestricted fund at The Community Foundation.

This is also a good time to make sure your estate plan is in good shape, including bequests you may wish to leave to a fund at The Community Foundation so that the causes you care about can continue to be supported for generations to come.

 

Please reach out to the team at The Community Foundation. We are here to help! Call us at 540-432-3863 or visit www.tcfhr.org.

 

What seems charitable may not always be deductible in the eyes of the IRS

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What seems charitable may not always be deductible in the eyes of the IRS

With such a wide range of options available for you and your family to support your favorite causes and your community, ranging from crowdfunding to online solicitations, how do you know whether (and why) your donations are eligible for funding out of your account at The Community Foundation?

In short, contributions to organizations and causes that would fall into the non-tax-deductible category, although worthy investments to help the community, generally are not eligible recipients of grants from your funds at The Community Foundation. Remember, you received a tax deduction when you transferred assets to your fund at The Community Foundation, which means the money needs to be distributed to charitable organizations and causes qualified to receive tax-deductible contributions.

If you’re interested in the legal background, keep reading!

Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt, meaning they don’t pay taxes. This is a status for which an organization must seek IRS approval.

Even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. To qualify specifically under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, the recipient organization must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” In other words, “charitable,” according to the IRS, has a very specific definition. Your funds at The Community Foundation help you support the 501(c)(3) charitable organizations you and your family care about.

Separate from your charitable donations, perhaps you and your family also support social welfare groups (organized under Section 501(c)(4) of the Internal Revenue Code). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (e.g., gifts to volunteer fire departments and veterans organizations). Your fund at The Community Foundation can’t be used to support non-tax-deductible civic causes, but certainly you can continue supporting these causes out of your personal assets.

Similarly, chambers of commerce and other business leagues fall under Internal Revenue Code Section 501(c)(6); donations to these entities are not tax deductible, either.

In addition to your civic activities, perhaps you’ve also helped set up a dedicated account at a bank to provide scholarships to the children of an accident victim, or even participated in a GoFundMe fundraiser to help a specific family. These vehicles, along with other crowdfunding platforms, typically do not meet the qualifications for a charitable organization under Section 501(c)(3), usually because the funds are earmarked for a particular person or persons.

We know the rules are complex and can be overwhelming! If you have any questions about the tax deductibility of your contributions to various organizations, and whether your community foundation funds can be deployed to make the contributions, please reach out to the team at The Community Foundation. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules.

The team at The Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. We also encourage you to consult your tax or legal advisor to learn how this information might apply to your own situation. 

Call us any time from 9am to 5pm Monday through Friday at 540-432-3863 for questions. www.tcfhr.org

 

Is the cost of event tickets tax deductible?

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Is the cost of event tickets tax deductible?

As charitable organizations emerge from pandemic restrictions, in-person fundraising events are beginning to rebound, especially athletic events that are held outside. This is a good time for a quick refresher course on the charitable deduction rules related to events, which can be tricky.

As a general rule, if you purchase a ticket to a fundraising event and attend the event, the IRS only allows a tax deduction for the portion of the ticket price for which you received nothing of tangible value in return. So, when the charity sends a receipt for the gift, you will see that the charity has subtracted the fair market value of the perks–food, beverage, entertainment, T-shirts, and other goodies–from the full amount of the contribution. The rules for raffles, auctions, and games of chance are also complex, exacerbated by the increase in virtual events and online fundraisers.

What’s the reason for all of this complexity? Simply put, tax-deductible dollars cannot be used for private benefit. The point of the charitable tax deduction is to incentivize taxpayers to use their own money to help others. Even when a portion of a donation can be tied to funding the charity’s programs, the intermingling of event-related benefits back to the donor (even if it’s just a T-shirt or a dinner) becomes too much of a tangled web, in the IRS’s view, to discern the true amount of the charitable deduction, and without that clarity, none of it is deductible.

The good news here is that the team at The Community Foundation is on top of it. We are here to answer your questions about tax deductibility and how to help the charities you care about.

Call us any time from 9am to 5pm Monday through Friday at 540-432-3863 for questions. www.tcfhr.org

 

Summer legislative updates–and looking ahead to sunsets

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Summer legislative updates–and looking ahead to sunsets

Reconciliation legislation is back in play, and includes a few tax provisions (e.g., adding a corporate minimum tax and eliminating the carried interest tax break). Notably, though, the proposal includes $80 billion in budget increases for the Internal Revenue Service, which will help shore up the IRS’s expertise and pay for enforcement efforts to collect taxes.

Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions.

While potential tax reform through budget reconciliation legislation may be top of mind for taxpayers and advisors, it’s also important to remember that the Tax Cuts and Jobs Act of 2018 (which seems like a long, long time ago!) included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies. In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range.

As your clients begin to set their philanthropic goals for the next several years, the team at The Community Foundation is happy to help structure long-term strategies to maximize not only your clients’ tax benefits, but also the benefits to the community. Our professionals are deeply familiar with the short-term, mid-term, and long-term needs of our community, as well as the nonprofits that are working to address those needs. Our experienced team works with you to help your clients support community needs now and in the future through clients’ donor-advised funds, field of interest funds, designated funds, and other vehicles established at The Community Foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support to improve our community, and you in your trusted role as the client’s advisor.

Learn more at www.tcfhr.org, email Revlan at [email protected], or give us a call at 540-432-3863.

 

Generational giving through retirement plans, life insurance, and meaningful bequests

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Generational giving through retirement plans, life insurance, and meaningful bequests

August is national Make a Will Month. You’ve likely already worked with your advisors to establish an estate plan, including a will and even a trust. Still, this is a good time of year to review your plan in case things have changed.

As you review your estate plan, consider whether your documents are aligned with your philanthropic intentions, especially if you’ve captured your philanthropic intentions through one or more funds at The Community Foundation. A fund at The Community Foundation can be an ideal recipient of estate gifts through a will or trust, or through a beneficiary designation on a qualified retirement plan or life insurance policy.

In particular, bequests of qualified retirement plans can be extremely tax-efficient. This is because charitable organizations such as The Community Foundation are tax-exempt. This means the funds flowing directly to your fund at The Community Foundation from a retirement plan after your death will not be reduced by income tax. This also means the assets will not be subject to estate tax.

Don’t overlook life insurance, either. Not only are you able to designate a fund at The Community Foundation as the beneficiary of a life insurance policy, but in some cases you also may elect to transfer actual ownership of certain types of policies. For example, if you were to make an irrevocable assignment of an eligible whole life policy to your fund at The Community Foundation, a tax-deductible gift of the cash value of the policy occurs at the time of the transfer. A gift like this could potentially ease your income tax burden, especially if the Foundation continues to own the policy and you make annual tax deductible gifts to cover the premiums.

The Community Foundation makes it easy for you to work with your advisor to draft bequest terms in legal documents, including beneficiary designations of retirement plans and life insurance policies. Please ask your advisor to contact our team for the exact language that will ensure alignment with your intentions. In many cases, anytime during your lifetime, you may even update the terms of a fund at The Community Foundation that you’ve designated to receive a bequest upon your death.

Learn more at www.tcfhr.org, email Revlan at [email protected], or give us a call at 540-432-3863.