Maximizing Deductions for Donations to Sierra Canyon School
Sierra Canyon School is a fully-qualified section 501(c)(3) charitable organization and, as a public charity, you will receive the maximum value for your charitable donation to the School. In addition, new tax legislation enacted at the end of 2017 may provide some additional benefits and strategies for your donations. Your contribution is very valuable to the School and we appreciate your support. See below for some guidelines on the deductibility of charitable contributions to the School and benefits from the new tax legislation.
Opportunities Arising from the Tax Cuts and Jobs Act of 2017 (the Tax Act)
- No Pease Limitation—The Tax Act eliminated the so-called “Pease limitation.” The Pease limitation reduced your itemized deductions, including charitable deductions, by an increasing amount as your adjusted gross income increased, up to 80% of your overall deductions. If the Pease limitation affected you, after the Tax Act now the entire amount of your donation to the School will be deductible regardless of your income (subject to the percentage limitations discussed below).
- Bunching and Donor-Advised Fund Strategies—The Tax Act also increased the standard deduction, permitting a “bunching” strategy. If you normally give or would like to give an annual donation to the School that does not exceed the standard deduction by at least the amount of the donation, you may want to consider combining (bunching) multiple year donations into one year. This way you can get the full deduction benefit of your larger donation to the School by itemizing deductions in the bunched year, while taking advantage of the higher standard deduction in other years.
- In addition, if you wish to give to the School annually but still take advantage of the bunching strategy, you may benefit from using an existing or newly-created donor-advised fund (DAF). By donating the bunched amount to your DAF in one year, you obtain the full deduction in that year, and use your DAF balance to request the sponsor to make an annual distribution to the School.[1]
- In addition to the specific Tax Act deduction benefits and strategies above, the lower rates and increased standard deduction in the Tax Act may have lowered your overall federal tax liability. Please consider donating some or all of that tax savings to help the School fulfill its educational mission.
- The Tax Act increased the maximum percentage of your income that may be donated in cash to charity in a single year from 50% to 60%. See below for details.
Cash Donations
- Your cash donation is fully deductible as a charitable contribution, subject to certain limitations on the percentage of taxable income you may deduct in a single taxable year (see below for details).
Publicly Traded Securities
- Your donation of publicly traded securities (for example, publicly traded stocks and bonds) is also in most cases fully deductible up to the current fair market value of the securities on the date of donation, and will have the added benefit of avoiding any capital gains taxes on the accumulated appreciation.
Tangible Personal Property
- The School welcomes donations of property we can readily use in our educational mission, such as books we can add to our library. Your donation of such tangible personal property is in most cases fully deductible to the extent of its fair market value.
- For other tangible personal property, we welcome such donations if we have the ability to readily convert the property to cash that the School can use in its educational mission. Please contact Mary Mazzuca, Director of Institutional Advancement, to discuss. In these cases, your deduction is limited to your adjusted tax basis (generally, the amount you paid). The deduction can never exceed the fair market value.
Non-Publicly Traded Securities and Real Estate
- The School may in some cases accept certain donations of non-publicly traded property, such as real estate and non-publicly traded securities, and donations of these types of property may also generate fair market value deductions while avoiding capital gains taxes, but may have additional considerations and requirements. Please contact Mary Mazzuca, Director of Institutional Advancement, for additional information if you wish to donate any of these types of property to the School.
- Please note that for nonpublicly traded securities or other nonpublicly traded property with a fair market value over $5,000, you must generally obtain a “qualified appraisal” that satisfies specified tax requirements in order to obtain the deduction.
Special Types of Property
There are certain types of property donations, other than those described above, that may be subject to special and complex rules. These include:
- Inventory property
- Cars, boats, and automobiles
- Partial interests in property
- Patents
Please contact Mary Mazzuca, Director of Institutional Advancement, for additional information if you desire to donate any of these types of property or have other questions.
Qualified Charitable Distribution
- If you have a regular IRA and are over 70½, you must withdraw a “required minimum distribution” (RMD) which is generally taxable at ordinary income rates to the extent previously untaxed. However, for many IRAs you can direct your IRA trustee to take up to $100,000 of your annual RMD and donate it directly to the School as a “qualified charitable distribution” (QCD). You will not be taxed on the amount of the QCD that would have been included in your income. The nontaxable portion of the QCD is not only the equivalent of a deduction of the same amount (note that you will not receive a separate charitable deduction for this portion of the QCD), but by lowering your adjusted gross income, may allow you to avoid losing tax benefits that are phased out at higher adjusted gross income levels.
Receipts and Proof of Your Donation
- The School will provide a receipt for your donation that meets IRS requirements. For donations in which a benefit is provided to you (such as for our gala), we will provide an acknowledgement if your payment is greater than $75 that specifies the value of the benefit and that only the amount of the payment in excess of the benefit is deductible.
- For property donations, the School will provide a written acknowledgement that meets IRS requirements. For donations over $500, you must maintain certain other information to obtain the deduction and, with certain exceptions for publicly traded securities and other securities, generally such donations over $5,000 require a “qualified appraisal” of the property.
Federal Income Tax Percentage Donation Limits for Individuals
For federal income tax purposes:
- Cash donations to the School are eligible for the maximum deduction limits for federal income tax purposes, up to 60% of your “contribution base” (generally, your adjusted gross income).
- For noncash donations, the limit is 50% of your “contribution base,” except for capital gain property. Charitable deductions for donations of capital gain property (property that would generate long-term capital gain if it were sold) are limited to 30% of your contribution base, except that you can exceed the 30% limitation if you elect to deduct only your adjusted tax basis in the property and not the full fair market value.
- For donations in excess of the percentage limits, a carryover of the disallowed charitable deductions is permitted for up to five years from the date of donation.
Important Notice
This deduction summary is intended to provide general guidance only, does not cover all situations, and is not tax advice. The School will separately provide any receipt or acknowledgement as required by law. Please consult your tax advisor about the tax consequences of any donation to the School.
[1] A DAF is an account maintained in your name by a public charity sponsor that permits you to obtain the maximum deduction for any donation made to your DAF in that year, and you can request the DAF sponsor to distribute your DAF funds to the School (or another charity) in the amounts and on the schedule you desire. Although the DAF sponsor has legal control of the DAF funds, generally a DAF sponsor will follow your recommendation as long as the recipient charity meets qualifications established by the sponsor (and any other sponsor policies regarding timing, minimum amounts, etc.). The School should satisfy the requirements of almost any national DAF sponsor as a permitted charitable distributee. Many of the largest mutual fund companies have established public charity DAF sponsors.
