Washington Hotline – November 28, 2017


Washington Hotline

IRS Tips on Charitable Giving

In IR-2017-191, the IRS offered seven charitable giving tips to taxpayers. The IRS stated, “Giving money or goods to a tax-exempt charity before December 31 can usually be deducted on that year’s federal income tax return.” These seven tips may help to maximize benefits from charitable gifts.

  1. Qualified Charities – Only gifts to qualified charities are deductible. The Select Check Tool on IRS.gov is useful for finding a qualified charity. Religious organizations with regular worship services are generally qualified, even though they are not listed on the IRS database.
  2. Itemized Deductions – Charitable gifts are deductible if you itemize on IRS Form 1040 Schedule A. Most taxpayers will itemize if their deductions exceed the standard deduction. Cash gifts up to 50% of your income are generally deductible. If you give over this amount, the excess gifts may be carried forward and deducted during the next five years.
  3. Cash, Checks, Credit Cards, Payroll – You need a bank record or written statement from a charity for cash or similar gifts in order to claim a charitable deduction. For a payroll deduction, you should save your paystub or W-2 statement.
  4. Property Gifts – Clothing and household goods must be in good or better condition to qualify for a deduction. If you give clothing or household goods over $500 in value, you may obtain a qualified appraisal and attach it to your return. Gifts of $250 or more in value require a written acknowledgment from the charity with a description of the gifted property. There are special rules for vehicles and other property gifts. Visit IRS.gov for additional details.
  5. Donor Benefits – Some gifts involve a transfer back to the donor of goods or services by the charity. The charitable acknowledgement of gifts with a transfer back to the donor must show the value of the benefits transferred. For example, a gift by a donor for the annual charity dinner event will lead to a deduction that is reduced by the value of the dinner.
  6. IRA Owners – If you are an IRA owner over age 70½, you may make a gift from your IRA custodian directly to a qualified charity. The maximum IRA rollover gift is $100,000 per year. An IRA rollover gift also would qualify for part or all of your required minimum distribution (RMD). See Pub. 590-B on IRS.gov for more details.
  7. Good Records – You should keep good records of all charitable gifts so that you can prepare your IRS Form 1040. There must be documentation for property gifts. Some property gifts with value over $5,000 will require a qualified appraisal. See IRS.gov for further information.

Senate Prepares Tax Bill for December Vote

On November 16, the Senate Finance Committee passed the Tax Cuts and Jobs Act on a party-line vote of 14 to 12. Senate Finance Committee Chairman Orrin Hatch (R-UT) stated, “This is an initiative that focuses on building a better economy for American workers and a better future for generations to come. With this bill, we act to strengthen the middle class, reward hard-working taxpayers, and get our economy back on track. While we have cleared a major hurdle tonight, there is still much work to be done and I look forward to working with my colleagues to get this across the finish line.”

The full Senate will debate the bill after the Thanksgiving holiday. A vote on the bill is expected in early December.

Several senators are still requesting changes to the final bill. Sen. Ron Johnson (R-WI) stated he could not support the bill with a corporate rate of 20% and a 17.4% rate reduction for pass-through businesses. The pass-through businesses would potentially have a rate of approximately 31%. He prefers a rate for small business closer to the 25% rate in the House bill.

Sen. Susan Collins (R-ME) expressed concern about a Senate bill provision to repeal the Affordable Care Act individual health care mandate penalty. She said that provision “gravely complicated our efforts.” Collins also preferred a 22% corporate tax rate rather than the 20% rate in the bill. Finally, she hopes the bill will retain the House deduction for up to $10,000 in property taxes.

Sen. Lisa Murkowski (R-AK) previously joined Sen. Collins to vote against repeal of the Affordable Care Act mandates. Murkowski hopes to include provisions to stabilize the Affordable Care Act through cost sharing reduction payments for insurance companies.

Editor’s Note: If the Senate passes the bill in early December, there may be an informal conference between the House and Senate. Given the short legislative time and the need to pass a continuing resolution to maintain government operations by December 8, an informal conference is quite possible. The conference may prepare a final bill. Alternatively, the House and Senate could vote and send bills back and forth until the final bill is passed. If the Senate does pass the Tax Cuts and Jobs Act the first week of December, it now appears that a final bill could be passed by December 24.

White House Carefully Supports Tax Bill

On November 17, the White House Council of Economic Advisors Chair Kevin Hassett spoke at a press conference. He emphasized the White House has three priorities for the tax bill, which are a 20% corporate tax rate, middle income tax relief and a simpler Internal Revenue Code.

Reporters asked whether the White House preferred the House or Senate tax on pass-through businesses. Hassett responded, “Moving forward, what they do about pass-through entities, what they do about this or that – we at the White House do not want to get ahead of that.”

There were several questions about the estate tax. Hassett noted the White House “strongly favors the elimination of the death tax.” However, he did not reject the Senate version to double the basic exclusion amount to $11.2 million in 2018 and retain the estate tax.

Hassett was asked about the Senate decision to make the individual income tax cuts effective only until 2025. He responded, “I think it is the intent of everybody involved in the process that these tax reductions become permanent.” The hope is that the middle class income tax cuts from 2018 to 2025 could subsequently become permanent.

Editor’s Note: The House White has been very involved in discussions with the House and Senate taxwriters during the Thanksgiving recess. However, it is now clear that the White House wants the House and Senate to be able to follow “regular order.” The primary advocate of “regular order” has been Sen. John McCain (R-AZ). He indicated last week that he appreciated the White House effort to allow the House and Senate process to function.

Applicable Federal Rate of 2.6% for December — Rev. Rul. 2017-24; 2017-49 IRB 1 (17 Nov 2017)

The IRS has announced the Applicable Federal Rate (AFR) for December of 2017. The AFR under Section 7520 for the month of December will be 2.6%. The rates for November of 2.4% or October of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

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