Knowing What Counts Podcast

Tax-Smart Philanthropy: Maximizing Impact with Non-Cash Gifts

• Tim Provost, CPA • Episode 21

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What Do Donors and Nonprofits Need to Know About Non-Cash Gifts? - 

Looking to make a bigger impact with your charitable giving while maximizing tax benefits? Dive into the strategic world of non-cash contributions with Brooke Williams, Audit Manager at MP CPAs, as she unveils the powerful advantages of donating appreciated assets.

Most donors default to cash contributions, but those with appreciated stocks, real estate, artwork, or even cryptocurrency have access to a giving strategy that can significantly reduce tax burdens while potentially increasing charitable impact. Brooke expertly breaks down how donors can avoid capital gains taxes on appreciated assets held for more than a year while still receiving charitable deductions for the full fair market value—a double tax advantage that cash simply can't provide.

The conversation explores both donor and nonprofit perspectives, covering everything from the popularity of publicly traded securities as donation vehicles to the complexities of the "related use rule" for tangible property donations. Brooke walks listeners through critical IRS documentation requirements, including when qualified appraisals are necessary and which specific forms must be filed for different gift values. For nonprofits, she emphasizes the importance of developing comprehensive gift acceptance policies to handle these complex donations appropriately.

Whether you're a potential donor with appreciated assets or a nonprofit looking to expand your giving options, this episode provides essential guidance for navigating the complexities of non-cash charitable contributions. Remember that consultation with tax professionals is crucial in this space, as the rules are strict and the requirements precise. Subscribe to the Knowing What Counts Podcast for more expert insights on protecting and optimizing your wealth!

To learn more about MP CPAs visit:
https://thempgroupcpa.com/
MP CPAs
413-739-1800

Speaker 1:

Welcome to the Knowing what Counts podcast, the place where expert guidance meets smart financial decisions. Whether you're a high net worth individual or a thriving business, the experts at MPCPAs are here to help you protect and optimize your wealth. Let's get started, because success begins with knowing what counts.

Speaker 2:

Because success begins with knowing what counts, from appreciated stock to real estate and crypto. Non-cash gifts can be powerful tools for charitable giving, but they come with unique accounting and compliance challenges. Learn what donors and nonprofits need to know to make the most of their contributions. Welcome back everyone. I'm Sofia Yvette, co-host slash producer, back in the studio today with Brooke Williams, audit Manager at MPCPAs. Brooke, how's it going today? Good, how are you? I'm doing well Now. Why don't you introduce yourself to the listeners a little bit more about your role at the firm?

Speaker 3:

I'm an audit manager with the firm. I've been with the firm for about six and a half years. I manage audit services of small and medium-sized companies in industries including non-profit organizations and various for-profit companies.

Speaker 2:

And what exactly do you mean by non-cash gifts in the context of charitable giving?

Speaker 3:

So non-cash gifts are donations of assets other than cash. This can include a wide variety of items, from publicly traded securities like stocks and bonds, to real estate, art, collectibles, intellectual property, crypto assets and even tangible personal property like vehicles or equipment. Essentially, it's anything of value that isn't currency.

Speaker 2:

And why are non-cash gifts so attractive to some donors, particularly those with significant assets?

Speaker 3:

Non-cash gifts can offer significant tax advantages. Donors can often avoid the capital gains taxes on appreciated assets that they've held for more than a year, while still receiving a charitable income tax deduction for the fair market value of the donated asset. This can result in a larger deduction and more overall tax savings compared to selling the asset and then just donating the cash.

Speaker 2:

Now, what is the most common type of non-cash gift and why is it so popular?

Speaker 3:

The most common type is gifts of appreciated publicly traded securities like stocks or mutual funds. Because of their liquidity and ease of valuation, as mentioned, donors can typically avoid the capital gains tax on the appreciation and claim a deduction for the fair market value.

Speaker 2:

From a non-profit's perspective.

Speaker 3:

From a nonprofit's perspective, what are the primary benefits of accepting non-cash gifts? Non-cash gifts can open up new revenue streams and attract a broader base of donors, especially those who may not have significant disposable cash but possess valuable assets. They can also help nonprofits acquire needed equipment, property or resources without expending their cash reserves to help the nonprofit carry out its mission.

Speaker 2:

So, brooke, what are some of the key tax considerations for donors when making a non-cash gift, especially regarding valuation and deductibility?

Speaker 3:

Yeah, so valuation is critical. For gifts over a certain amount, for example $5,000 for most non-cash gifts, or even lower for specific items like vehicles, an independent qualified appraisal is often required. The deduction amount can also depend on whether the property is considered ordinary income property or capital gain property, and whether the nonprofit's use of the gift is related or unrelated to its exempt purpose.

Speaker 2:

What are the biggest challenges or risks of nonprofits when accepting non-cash gifts?

Speaker 3:

Nonprofits need to assess the gift's usefulness, marketability and any potential liabilities associated with it. There are also administrative burdens, such as proper valuation, IRS reporting requirements and potential costs associated with liquidating the asset. Nonprofits also have to be concerned with properly recording these non-cash gifts, like crypto assets, intellectual property or any other items, as mentioned earlier.

Speaker 2:

Let's talk about tangible personal property. What's unique about donating items like art, collectibles or even vehicles?

Speaker 3:

With tangible personal property, the related use rule is very important. If the nonprofit uses the donated item for its exempt purpose, like a museum displaying donated art, the donor can generally deduct the full fair market value. Donated art the donor can generally deduct the full fair market value. But if the nonprofit sells the item and uses the proceeds for its mission this would be an unrelated use Then the deduction is usually limited to the donor's cost basis. Vehicles often also have specific IRS rules for deduction based on the sale price by the charity.

Speaker 2:

So are there any specific IRS forms or documentations required that both donors and non-profits need to be aware of when dealing with all non-cash gifts?

Speaker 3:

Yes, for non-cash gifts over $500, the IRS Form 8283 for non-cash charitable contributions is typically required. Then, for gifts over $5,000, section B of Form 8283 requires a qualified appraisal and the signature of the donor organization. Nonprofits have their own reporting requirements, such as Form 8282, if they sell certain donated property within three years of receiving it.

Speaker 2:

Now, what is one key piece of advice you give to a donor considering a non-cash gift?

Speaker 3:

Consult with your tax advisor and the receiving non-profit early in the process. Each non-cash gift type has unique tax implications and operational factors. Understanding these upfront can help you maximize your tax benefits while ensuring that the gift aligns with the nonprofit's needs.

Speaker 2:

And, conversely, what's the most important takeaway for a nonprofit looking to accept non-cash gifts effectively?

Speaker 3:

It's important to develop a clear written gift acceptance policy. This policy should outline what types of non-cash gifts the organization will accept, the due diligence process for each, valuation requirements and how the gift is handled once received. And it's also important to consult with your CPA to ensure the non-cash gift is being properly recorded.

Speaker 2:

Finally, any final thoughts to give our listeners today. Thinking of donating a non-cash gift or a non-profit, who may be receiving a non-cash gift?

Speaker 3:

So the rules around non-cash gifts can be complex and very strict, and you should speak to an accountant to be sure that you're meeting all the requirements.

Speaker 2:

Wow, brooke, thank you so much for opening our eyes today to the truth about non-cash gifts and the rules and regulations they come with. We'll catch you next time. Have a great day, you too.

Speaker 1:

Thanks for listening to the Knowing what Counts podcast. Ready to optimize your wealth and protect your future, visit thempgroupcpacom or call 413-739-1800 to connect with our team of experts. Remember, success is about knowing what counts.