Best Charitable Gift Annuity in Florida- NY
Best Charitable Gift Annuity in Florida- NY
How Does Charitable Gift Annuity Works?
A charitable annuity is a contract between charity and donor where the donor donates to the charity institute in the form of cash, assets, or security.
What are Charitable Gift Annuity Advantages?
In return, you will get deduction tax payment along with the fixed amount in return for the rest of your life.
Upon the death of the donor, the charity will receive the remaining balance of annuity.
The charity organization over here is the non-profit organization.
You can set up for charitable gift annuity on an individual as well as a couple of bases.
Who Offers charitable gift annuity
- Arts and social service organizations
- Community foundations
- Environmental groups
- National health organizations
- Non-profits
- Religious groups
- Universities
There are multiple advantages of opting for charitable annuity over the traditional charity method.
With the help of charitable annuity, one can build a long term relationship with the donor and vice-versa.
The amount of payment received by the donor depends on factors like age at the time of setup of annuity gift; generally, the younger donor will receive more payments in a small amount.
Why Charitable Gift Annuities are attractive?
Best Charitable Gift Annuity in Florida- NY
Charitable gift annuities are attractive because they allow you to make donations to the charity of your choice, while also receiving a lifetime fixed income stream for yourself or others.
The payment of the income is a legal obligation of the charity and is guaranteed.
But like any income, your annuity payments are subject to taxation.
However, they also offer attractive tax deductions.
The charitable gift annuities are meritorious in 3 ways, one they provide a distinct advantage over tax liabilities of a person, they also have a great philanthropic side to them and lastly, they tend to provide an assured monthly income.
The Cares Act and Charitable Annuity
The CARES Act allows individuals to deduct up to 100% of income in 2020 using charitable gifts of cash.
To get this treatment, the deductible charitable gift must be a “qualified contribution.”
What is a qualified contribution? First, the taxpayer must elect this treatment for the gift.2 Also, the gift can’t go to a donor advised fund or a supporting organization.
Finally, a qualified contribution requires:
- (i) such contribution is paid in cash during calendar year 2020 to an organization described in section 170(b)(1)(A)
To break it down, a qualified contribution is a deductible contribution that is:
- “paid in cash”
- “during calendar year 2020”
- “to an organization described in section 170(b)(1)(A))” (i.e., a public charity)
Let’s consider some examples:
Gift 1 – Cash
I donate a $1,000 check to a public charity on December 1, 2020. I deduct $1,000.
Is this $1,000 deductible contribution a qualified contribution?
Yes. All three elements are there.
Gift 2 – Quid pro quo cash
I donate a $1,000 check to a public charity on December 1, 2020, in exchange for admission to a gala dinner worth $100 according to IRS guidelines. I deduct $900.
Is this $900 deductible contribution a qualified contribution?
Yes. The $900 is a contribution paid in cash during calendar year 2020 to a public charity.
The $100 is not a contribution.
It is just payment for the dinner.
In other words, the $100 part was a sale not a gift.
Of course, we don’t have specific guidance here, but there is no reason to expect that such a gift would be treated differently. (There are areas where we can’t have benefits going to the donor, but those relate to private foundations, donor advised funds and certain charitable trusts, so they are not an issue here.)
Gift 3 – Charitable Gift Annuity
I donate a $100,000 check to a public charity on December 1, 2020, in exchange for a lifetime annuity worth $60,000 according to IRS valuation guidelines. I deduct $40,000.
Is this $40,000 deductible contribution a qualified contribution?
Yes. This is the same idea as the quid pro quo cash gift in the last example. Is this $40,000 a gift of cash? Yes. Does this cash go to a public charity? Yes. Is this gift of cash paid to the public charity during calendar year 2020? Yes. As with the previous example, the $60,000 part is not a contribution. It is simply payment for the annuity.
Again, we don’t have specific guidance here, but this gift meets the rules exactly as the last gift did.
Gift 4 – Charitable remainder trust
I donate a $100,000 check to a charitable remainder trust (CRT) on December 1, 2020.
I receive a lifetime annuity from the property in the CRT worth $60,000, according to IRS valuation guidelines. I deduct $40,000. At its termination, the trust will pay anything left over to a public charity.
Is this $40,000 deductible contribution a “qualified contribution”?
Probably not. Is cash paid to a public charity during calendar year 2020? No. What the public charity gets in 2020 is not cash, but rather a future interest.4 Cash is paid in 2020 to a CRT (an entity described in section 664), not to a public charity (“an organization described in section 170(b)(1)(A)”).
The counterargument here is that the statute might be construed to require only that “a contribution” goes to a public charity in 2020, not the actual cash itself. To follow this argument, let’s first add some parentheses. The statute now reads, “a contribution (paid in cash during calendar year 2020) to an organization described in section 170(b)(1)(A).” The argument continues. A contribution need only be “paid in cash” by the donor. It need not actually be “paid in cash” to an organization described in section 170(b)(1)(A). This argument holds that we can have a qualified contribution where no cash goes to a public charity in 2020. Before getting too lost in a discussion of the grammatical plausibility of such syntactical gymnastics, it helps to consider legislative intent.
Beyond the text itself, it helps to understand the intent of the law. The purpose here is to get cash to public charities they can use immediately. That is why gifts to donor advised funds and supporting organizations are excluded.
Does a charitable gift annuity (CGA) accomplish this purpose? Yes. If I give $100,000 in cash to a charity for an annuity worth $60,000, can the charity spend the $40,000 deductible gift portion immediately? Yes. If the IRS valuation is correct, then setting aside the $60,000 will, on average, take care of the annuity obligation.
Of course, this freedom can vary in some states.
In some states, the charity could actually spend the entire $100,000 immediately and just let the next administration worry about the annuity obligation.
In some states, the charity would need to show that they had set aside the $60,000.
In some states, they would need to set aside even more or use the money to buy an annuity from an insurance company to make these payments.
What if the charity chooses not to spend the gift portion immediately? Many charities follow this practice. But the purpose of the statute was to get cash to public charities immediately. It was not to direct what those public charities did with that immediately available cash.
What if the charity wants to spend the entire gift portion immediately but local law requires it to hold some back (or purchase an annuity from an insurance company)? Consider this analogous gift.
Charitable Gift funded with Cash
Charitable gift annuities funded with cash allow for maximum tax-free payments while gifts of appreciated securities allow donors to minimize capital gains tax and investment income tax.
A portion of the capital gains tax is avoided, while the remaining capital gains tax is spread over the donor’s life expectancy.
A deferred gift annuity is a unique arrangement that allows donors to make an immediate gift for the charity’s benefit and begin receiving annuity payments at some future time that the donor selects.
The donor is allowed an immediate income tax deduction in the year the gift is made. The deduction helps offset the cost of the gift.
Remember that the charitable gift annuity is an irrevocable gift commitment, but one with excellent tax and financial benefits.
Charitable Giving Strategies
As assets accumulate, you are granted the luxury of giving back to the community.
We encourage philanthropy and our clients have embraced the idea of charitable giving.
Creating and maintaining a charitable endeavor can be complex.
Whether you’re looking to increase your tax deductions or need assistance developing a charitable endeavor, Mintco Financial Team is committed to exceeding your expectations.
As a donor, you have a lot of giving options.
We’ll help you focus your charitable donations to maximize your impact and satisfaction, while also maximizing your tax deductions.
Mintco Financial has the ability to help you understand your options and assist with your charitable giving plans.
Contact us for assistance with your charitable giving strategy.
Phone: 813-964-7100 or 716-565-1300