The Protecting Americans from Tax Hikes Act (PATH) contains a number of tax provisions that are designed to reduce the amount of taxes paid by United States taxpayers. This act was signed by the President in December 2015. The provisions in the act are not new incentives, but made existing incentives permanent. This can be seen as somewhat significant as there is sentiment in Congress and elsewhere to reduce the tax benefit from charitable contributions. I would add that “permanent” in tax lingo means the provisions do not expire, but may be changed at any time by Congress.
The first incentive (Section 112) allows individuals over age 70 ½ to contribute to a qualified tax-exempt organization by making a qualified charitable distribution from an IRA. When this is done properly, the distribution is not included in gross income. Obviously, the taxpayer cannot take a charitable deduction for the contribution as the income is not included on the return. This distribution counts toward the taxpayer’s required minimum distribution (RMD) for the year and cannot exceed $100,000.
Section 113 permanently extends the enhanced deduction for contributions of apparently wholesome food for business taxpayers. Apparently wholesome food is defined in the act as food that is intended for human consumption and meets all applicable quality and labeling standards but is not marketable due to appearance, age, freshness, grade, size, surplus, or other conditions (Bill Emerson Good Samaritan Food Donation Act). For C Corporations, the donation is limited to 15 percent of the taxpayers’ net income for the year. Any other eligible organization may deduct up to 15 percent of the aggregate net income for all trades or businesses from which such contributions were made for the taxable year. There is a five-year carryforward for unused contributions. Finally, there are special rules for valuing the contributed inventory.
The third provision (Section 115) reinstates a rule that a shareholder’s basis in the stock of an S Corporation is reduced by the shareholder’s pro rate share of the adjusted value of the property donated rather than the fair market value of the property. This results in a lower reduction of basis which can have favorable consequences when the stock is sold.
The rules regarding these three provisions are somewhat complex. I have not covered the details here. Prior to making any contributions under these provisions, you should consult a qualified CPA, Enrolled Agent, or other tax preparer.
Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.
Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.
He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.
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