Chapter 6 - Full Chapter 9

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Boston University *

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FP106E

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Accounting

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Apr 3, 2024

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2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 1/64 Charitable Gifting Compilation The following are all pages from this module linked as a single file suitable for printing or saving as a PDF for offline viewing. Please note that this compilation will not include popup pages. Animations, buttons, links, or images may not work.

2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 2/64 Overview Individuals gift property to charities for a number of tax reasons, as well as non-tax reasons. Some of these reasons include: personal satisfaction reducing current income tax liability reducing the value of the gross estate with lifetime gifts; and reducing the estate tax liability for gifts made after death. Therefore, the financial planner will need to consider many factors prior to making a recommendation that a client contribute to charity. The first question to be answered is whether or not the client can afford to make a gift. If so, the next question to consider is "What property is the most appropriate to gift to a qualified charity?" From an income tax perspective, the identity of the donee, whether it is a public or private charity and the type of property gifted, will affect the maximum income tax deduction that may be taken once the gift has been made. There are various charitable transfer techniques. These include: outright gifts; split interest gifts, such as charitable remainder trusts and charitable lead trusts charitable gift annuities pooled income funds private foundations; and donor advised funds. To ensure that you have a solid understanding of charitable gifting, the following lessons will be covered in this module: Charitable Giving and the Estate Plan Assets Appropriate for Gifting to Charity Types of Charitable Gifts Lesson Objectives The Charitable Gifting module, which should take approximately three and a half hours to complete, will describe the most common reasons individuals gift property to charities and the important factors which financial planners should analyze before recommending that a client make a gift to a charity.

2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 3/64 Upon completion of this module, you should be able to: Evaluate the most suitable property interests to transfer to charity according to client objectives Compare and contrast the tax and non-tax characteristics of charitable trusts, and Calculate charitable income tax deductions for various types of charitable gifts.

2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 4/64 Charitable Gifting and the Estate Plan When considering charitable gifts within the context of an estate plan, the donor has the ability to transfer these assets to charity either during lifetime or after death. The tax objectives which charitable gifting satisfy include: if made during lifetime, reducing current income tax liability if made after death, reducing the size of the gross estate reducing the size of the taxable estate, thereby reducing the estate tax. Therefore, a careful examination of both types of techniques can maximize tax savings in all three areas. Practitioner Advice Although charitable gifting can accomplish a number of attractive tax advantages, you must be certain that your client is not only charitably inclined, but can afford to make the gift. It does not matter how attractive the tax advantages associated with charitable gifts are if your client has no desire to have a charity share in his or her estate. To ensure that you have a solid understanding of Charitable Gifting Strategies, the following topics will be covered in this lesson: Reasons for Gifting Gifting Factors Upon completion of this lesson, you should be able to: list the most common reasons for gifting property to qualified charities, and recall important factors that the financial planner needs to analyze before recommending that the client make a gift to a charity.

2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 5/64 Reasons for Gifting The most common reasons for gifting or bequeathing property to a qualified charity are: Donor satisfaction Reduce the size of the donor's taxable estate Reduce the donor's income tax liability, and Reduce the gift tax liability. Satisfaction- When a donor gifts property to a charity during their lifetime, they get the satisfaction of seeing the charity enjoy the property. Satisfaction may also be gained when others fulfill the intentions of the donor, either while he or she is alive or after his or her death. For example, one could bequeath money to one's church for the purchase of a new organ. Reduce size of the estate- Lifetime gifts of property which are gifted to a qualified charity, remove the gifted asset and also the future appreciation on this asset from the donor's estate. This allows the donor to exercise some control over the value of his or her estate by reducing the estate tax liability. Reduce the income tax liability- Lifetime gifts of property to qualified charities may also reduce a donor's income tax liability if they itemize deductions on their tax return. However, in many cases, more significant tax savings may be realized by claiming the standard deduction instead. In 2024, the standard deduction is $14,600 for individuals and $29,200 for married couples filing jointly who are under age 65. Tax deductions for state and local taxes are capped at $10,000 which may further reduce a taxpayer's itemized deductions below the standard deduction level. Depending on the type of property gifted and the type of charity to which the gift has been made, the value of the charitable income tax deduction may be as high as 60% of the donor's adjusted gross income for cash gifts. As with all charitable gifts, a 5 year carry forward is available for gifts that exceed the AGI limitation. A strategy for donors who want to maximize their tax savings is to group several years' worth of charitable contributions together into a single tax year in an amount that will exceed the standard deduction. The donor can then report their accelerated charitable deductions and other itemized deductions in one year and revert to taking the standard deduction again in the following year. Reduce the gift tax liability- A gift to a charity also qualifies for an unlimited charitable gift tax deduction. This means that no gift tax liability will be due on any transfer of assets made to a qualified charity during the donor's lifetime. There is no limitation on how much you can give to a qualified

2/24/24, 1:33 PM Charitable Gifting Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289646-dt-content-rid-67179705_1/courses/00cwr_metof106_o1/course/EP09_charitableGifting/allp… 6/64 charity. Keep in mind that this deduction is in addition to any annual exclusion gifts the donor may make and does not reduce the donor's $13,610,000 lifetime gift tax exclusion.

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