In the wake of Hurricanes Harvey and Irma, many clients may be looking for ways to help the victims of these storms through charitable donations—and while the desire to help may be the primary motivating cause for donating, clients should still be able to reap the tax benefits of making these donations.
In some cases, the IRS has taken action to make it easier for clients to donate without suffering adverse tax consequences. In other cases, however, understanding the rules that govern charitable donations can be critical to ensuring that the client is able to fully realize the tax benefits that can be derived from their generosity.
Charitable Donations: The Basics
While many clients may wish to make charitable donations to storm victims, they may not fully understand the tax rules that govern the deductibility of charitable donations.
Importantly, a charitable donation can only be deducted from the client’s federal income tax if the client itemizes deductions—meaning that the client’s itemized deductions must exceed the standard deduction for the year ($6,350 per individual or $12,700 per married couple in 2017). This means that if the client has no other itemized deductions (such as mortgage interest or medical expenses), he or she must donate above that amount in order to deduct the donation.
Further, the client’s donation must be made to an IRS-qualified charitable organization—meaning that the IRS must recognize the organization as qualified (the organization must be a domestic organization, although it may provide relief to foreign victims). Donations are not deductible if they are made directly to storm victims, so if the client plans on deducting the donation, he or she must choose a qualified organization.
Clients who are unable to donate cash should keep in mind that they can deduct the cost of any expenses that they incur in volunteering to help storm victims (for example, certain travel expenses may be deductible). Importantly, the client must keep receipts and records of all expenses that he or she plans to deduct in order to avoid future tax problems.
Leave-Based Donation Programs
Clients who are unable to make cash donations may be able to take advantage of guidance released by the IRS that can allow them to participate in employer-sponsored leave-based donation programs. The IRS guidance on leave-based donation programs established by employers allows employees to forego vacation, sick or personal leave time in exchange for cash payments that the employer makes to IRC Section 170 charitable organizations benefitting victims of Hurricanes Harvey and Irma.
The guidance provides that these cash payments will not be included in employees' income if they are made to organizations that are qualified under Section 170(c) for the benefit of storm victims before January 1, 2019. The opportunity to elect to forego these benefits will also not result in the constructive receipt of income or wages for employees.
An employee electing to forego benefits will not be entitled to claim a deduction for the charitable contribution that is discussed above, however. Further, the IRS will not require the employer to deduct the payments under the IRC Section 170 rules, rather than the Section 162 rules.
Many avenues for helping the victims of recent storm victims exist, but it’s also important that clients understand the rules governing charitable donation deductions in order to maximize the tax benefits of their generosity.
For previous coverage of tax-free charitable IRA rollovers in Advisor’s Journal, see
For in-depth analysis of charitable giving generally, see Advisor’s Main Library: