Wrapping Up 2012: Important Tax Reminders for U.S. Nonprofit Professionals
By Laura Kalick
With the country inching ever-closer to the edge of the metaphoric fiscal cliff, policymakers are discussing a number of proposals that are bound to impact nonprofit organizations’ ability to raise funds now and in the coming year. Due to the great uncertainty around taxes for next year, charities should take a hard look at their year-end fundraising tactics and consider communication efforts that will ensure donors are aware of how their gifts will be treated. Below are some key considerations to keep in mind as you wrap up year-end giving campaigns and brace for what lies ahead in 2013:
Understand Tax Change Scenarios: To wrap up the debate in Washington, there are various scenarios that could impact charitable giving, including increasing or decreasing tax rates, lowering the value of charitable deductions, changing deductions to tax credits or the adding of a floor before any charitable donations could be deducted. Politicians are currently negotiating changes to the tax code that could have a major impact on charitable fundraising in the year(s) to come. Nonprofit professionals should encourage donors to make gifts now, while the tax outcome is certain, rather than waiting until next year when the rules may be changed.
Know Some of the Favorable Tax Rules: Currently, favorable rules under the tax laws allow a donor to make gifts to charities of appreciated stock in 2012. In short, if stock is given to a charity there is no tax on the gain and donors can claim a deduction for the full fair market value. Again, tax rules could be changed in the future but the current tax rule is favorable to donors. This is in contrast to selling the stock, paying tax on the gain and then making a gift. These favorable rules for gifts to charities of publicly traded stock apply to shares held by the donor for more than one year, i.e., long-term capital gain property.
Remind Donors of Donation Deadlines: As a result of current favorable rules and potential changes in 2013, many individuals may be in a rush to squeeze in their last minute gifts. It is always helpful to remind donors that charitable gifts must be made on or prior to December 31st to be considered made in 2012. A gift is considered “made” when it is unconditionally delivered. For example, a check is considered “delivered” on the date the check is mailed. If a donor cannot get to the post office or prefers not to make a contribution via check, credit card contributions make the most sense as the date the individual makes the charge is the date of the contribution. There are also specific rules when a gift of property is made as there may be requirements for additional forms and/or appraisals, depending upon the size of the non-cash gift.
Ensure Proper Gift Recognition: It is critical that charities provide donors proper documentation about their qualification to receive charitable gifts. A charity must give donors a written statement acknowledging any gift payments greater than $75 for quid pro quo donations, with full disclosure regarding whether the donor has received goods or services in return. If good or services were received, the charity must let the donor know the fair market value of the goods received in return for the payment. This is true also where there is a charity auction or a raffle. The rule for raffle tickets is the cost of the ticket is not deductible because the cost of the chance to win is the price that was paid for the ticket, i.e., fair market value. For a charity auction, the price that the bidder paid was presumably the fair market value of the item and no deduction can be claimed even though the charity received the money. However, if the donor paid a price higher than fair market value, the excess can be deducted.
Many donors will ask for duplicate charitable gifts receipts near tax time. In addition to these letters from a charity for gifts of $250 or more, donors should be keeping records of cash payments such as cancelled checks, bank statements or credit card statements to show the name of the charity, the date of the gift and the amount donated.
While this is an uncertain time for the U.S. economy and many Americans, there are many measures including those listed above that will help ensure the fiscal stability of your organization. While you don’t need to be an expert in nonprofit accounting, it is important to understand and properly communicate to your constituents the potential changes affecting charitable contributions and how they can make the most out of their year-end giving plans.
About the author:
Laura Kalick, JD, LLM in Taxation, National Director, Nonprofit Tax Consulting
Laura has over 35 years of experience in both private and government practice, including the Internal Revenue Service (IRS) National Office, the United States Senate, and large accounting and law firms. She is the co-chair of the American Bar Association’s Exempt Organization Subcommittee on Unrelated Business Income Tax (UBIT). Along with her numerous professional affiliations, she has published a number of articles and co-authored two books. Laura received her B.A. from the University of Michigan, her J.D. from George Washington University, and her L.L.M., Taxation from Georgetown University. She is also a regular contributor to BDO’s Nonprofit Standard blog, The Nonprofit Standard Newsletter, and the BDO Knows Healthcare Newsletter.