Tax Planning: Charitable Giving

Preface: We all want a simpler code, but tax reform is about much more. It is about ensuring that everyone pays their fair share. The tax code is also used to promote behavior that we as a nation support, such as home ownership or charitable contributions. –Charles B. Rangel

Tax Planning: Charitable Giving

The majority of taxpayers are probably already aware that they can get an income tax deduction for a monetary gift to a charity when itemizing tax filing deductions on Schedule A. But there is a lot more to charitable giving.

Firstly, under the current tax legislation, for example, you are permitted to give appreciated property to a charity without being taxed on the appreciated gains. In addition, fort these reasons, and more, charitable giving may be an important part of your overall estate planning. These benefits can be achieved, though, only if you meet various requirements including substantiation requirements, percentage limitations and other restrictions. This blog is to introduce you to some of these charitable giving requirements and tax saving techniques.

To begin, let’s look at the basics –  Your charitable contribution giving can help minimize your tax bills only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes.

An individual may deduct any qualified charitable contribution as long as the contribution does not exceed the individual’s adjusted gross income.

Non-Itemizing Tax-Payers

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows an above-the-line deduction for non-itemizers in tax year 2020, However, unlike the provision under the CARES Act, the deduction for 2021 is claimed as deduction in calculating taxable income and not as an above-the-line deduction in calculating adjusted gross income. Individuals can take a $300 deduction against taxable income even if they do not itemize. The contribution must be made in cash. The cash must be contributed to churches, nonprofit educational institutions, nonprofit medical institutions, public charities, or any other qualifying 501c3 organization.

Itemizing Tax-Payers

Under the 2017 Tax Cuts and Jobs Act, the percentage limitation on the charitable deduction contribution base is increased from 50 percent to 60 percent of an individual’s adjusted gross income for cash donations to public charities in 2018 through 2025. There is an even greater benefit, because in addition, for 2021 you can elect to deduct up to 100 percent of your AGI with charitable contributions (formerly 60 percent prior to the CARES Act).

The income-based percentage limit is temporarily eliminated for an individual taxpayer’s cash charitable contributions to public charities, private foundations other than a supporting private foundation, and certain governmental units for 2020 and 2021. An individual may deduct any qualified charitable contribution as long as the contribution does not exceed the individual’s adjusted gross income.

Generally, a bank record or written communication from the charity indicating its name, the date of the contribution and the amount of the contribution is adequate.

An individual may carry forward for five years any qualifying cash contributions that exceeds his or her adjusted gross income. Partners in a partnership and shareholders in an S corporation may also deduct qualified charitable contributions that do not exceed their adjusted gross income.

Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30 percent of adjusted gross income. A special limitation also applies to certain gifts of long-term capital gain property.

Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.

Taxpayers over 70 ½ years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $100,000 ($100,000 for each spouse on a joint return). A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions from a traditional IRA.

Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. Your donations must be substantiated. Generally, a bank record or written communication from the charity indicating its name, the date of the contribution and the amount of the contribution is adequate. If these records are not kept for each donation made, no deduction is allowed. Remember, these rules apply no matter how small the donation.

However, there are stricter requirements for donations of $250 or more and for donations of cars, trucks, boats, and aircraft. Additionally, appraisals are required for large gifts of property other than cash. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible.

There are other special charitable giving techniques beyond the usual gifts of cash. These include, among others, a bargain sale to a charity, a gift of a remainder interest in your residence and a transfer to a charity in exchange for an annuity.

If you enjoy charitable giving as part of your tax planning, please do not hesitate to contact us with your tax questions about any of the tax giving benefits raised in this blog.



Educational Improvement Tax Credits with Special Purpose Entity (SPE)  

Preface: Education is what remains after one has forgotten what one has learned in school. — Albert Einstein

Educational Improvement Tax Credits with Special Purpose Entity (SPE)  

Pennsylvania’s Educational Improvement Tax Credit (a.k.a. EITC Program) is a tax credit-based program that provides charitably inclined individuals and businesses to give educational support to qualifying Pennsylvania private schools in the form of a tax credit.

These Pennsylvania tax credits are obtained from donations to a qualifying educational organization through an approved EITC vehicle. For example, with an EITC contribution, qualifying individuals and businesses can receive PA tax credits up to 90% for their qualifying and approved organization charitable contributions, so a $3,000 donation can give you a $2,700 credit towards your Pennsylvania income taxes.

Often, too many qualifying businesses do not capitalize on the opportunity to encourage funding the future of local schools and aspiring students with this special Pennsylvania tax credit. While the EITC Program has been available in Pennsylvania for more than a decade, recent revision provides these qualified credits with a simplified Special Purpose Entity investment.

A Special Purpose Entity is a pass-through partnership established solely to make contributions to schools through Pennsylvania’s Educational Improvement Tax Credit (EITC) program and distribute the tax credits received to its members.

There exist several Special Purpose Entity (SPE) participation opportunities that comprise a partnership K-1 investment that confers members the chance to obtain a credit that begins with an investment threshold of around $3,000. Therefore, SPE investments are ideal for taxpayers with $100,000 or more of taxable Pennsylvania income.

Additionally, there is a minimal barrier to entry for approval to participate in an SPE for an EITC credit. The process includes a one or perhaps two-page application where you designate the school(s) you wish to fund and the donation amount applicable to each. Once your application is approved, the SPE will communicate expectations of when they request the contribution check.

Following the end of the calendar year, SPE members obtain Federal and State K-1 forms, as with any partnership interest. The Federal Form K-1 shows your investment and Federal charitable contribution amount of the 10% of non-qualifying credit payment. In addition, the PA K- 1 allocates members a 90% PA tax credit, filed on a members PA-40 as other credits.

Who can join SPEs?

        • Legal entities and individuals who are owners or employees of an LLC, partnership, or corporation (but not sole proprietorship)
        • Individuals who own stock in any public company registered to pay tax in Pennsylvania2

What are the benefits of joining the SPE?

        • Receiving 90% of your contribution as a Pennsylvania tax credit;
        • Being able to direct your contribution to a private Pennsylvania school;
        • Being able to contribute the amount desired as an individual rather than through business ownership percentage;
        • Participate in the tax credit program in a Pennsylvania business partnership with out-of-state business owners who can’t benefit from the program.

If you think an SPE investment is of interest to you, or would like more information on SPE participation or paying your Pennsylvania income taxes while funding private education, please contact our office.


Breakfast Presentation: Structural vs. Cyclical: The Great Inflation Debate

Structural vs. Cyclical: The Great Inflation Debate

Event: Breakfast Presentation 
Date: July 27, 2021

Location: Shady Maple Smorgasbord 
Speaker: Michael Coolbaugh

Inflation is all the rage. Today’s media narrative is fixated on inflation and what it might mean for your investments, career and business ventures. Unfortunately, what often gets lost in the media blitz is the difference between structural and cyclical. In our discussion, we’ll touch on which of these forces are at play – and in what direction – and what it means for economic decision making.”

Event Schedule:

7:30AM  Buffet Breakfast

8:20AM  Introduction

8:30AM  Structural vs. Cyclical: The Great Inflation Debate | Webcast Presentation

9:30AM  Adjourn

Free for Clients and Friends of the Firm

Space is limited! Please RSVP by July 21, 2021 to reserve your space!

Email attendee names and business affiliation with “July 27th Presentation” in subject line to:

“Michael Coolbaugh is the Founder and Chief Investment Officer of the alternative investment firm, Strom Capital Management LLC. In addition to his responsibilities at Strom, Mr. Coolbaugh has also served as the Chief Macro Strategist at Element Macro Research LLC for the past two years. Prior to launching Element Macro Research, he worked at $10.7bn hedge fund of funds manager K2 Advisors, where he managed direct trading strategies for institutional client portfolios. Previously he spent a short stint at New York-based family office and proprietary trading firm Koyote Capital. And prior to that, he worked as an analyst at Paloma Partners Management Company, focused on merger arbitrage, event-driven and special opportunities.”

Disclaimer: This presentation is for educational and informational purposes only, and is not to be construed as information or other intentions including legal, tax, investment, financial, or other advice. Nothing contained in this presentation constitutes a solicitation, recommendation, endorsement, or offer by Sauder & Stoltzfus or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

The Hyperinflation Survival Guide: Strategies for American Businesses

Preface: This Holiday Weekend we provide the following suggested reading for business owners; but this is for education purposes only, and we are not stating either that current apparent inflationary forces will or will not perhaps be contained in future months.

The Hyperinflation Survival Guide: Strategies for American Businesses

Of the books published regarding hyperinflation, this may be the only one that provides effective strategies for operating a business under conditions of a rapidly depreciating currency. “The Hyperinflation Survival Guide: Strategies for American Businesses” was written by Dr. Gerald Swanson (an associate professor of economics at the University of Arizona).

Harry E. Figgie, Jr. sponsored the research and production of this book. As it was originally printed in 1989, it was way ahead of its time.

However, this doesn’t change the fact that this book will prove to be an excellent resource for businessmen and individuals once the Federal Reserve’s destruction of the U.S. dollar enters its terminal stage. Amazon link to purchase

Read Free Here: The Hyperinflation Survival Guide: Strategies for American Businesses

Thought: Consider the fact as your read this, that increasing foreign bank account compliance now may more completely restrict the future ability to protect your future business currency in any increasing inflationary environment. There are now increasingly fewer and fewer safety nets in the business system outside of the Fed and Treasury.