When making financial decisions for retirement and estate planning, it’s common to consider charitable objectives. Giving through a community foundation to the causes you care about is rewarding – in more ways than one. Planned giving can help reduce a taxable estate or reduce capital gains on a highly appreciated asset. Charitable gifts create a positive impact in the local community and the Endow Iowa Tax Credit Program offers generous tax incentives to make it possible for you to give more for less.
What is Endow Iowa?
The Endow Iowa program is part of an effort to enhance philanthropic activity in Iowa by encouraging investments to new or existing community foundations. The program – which is administered by the Iowa Economic Development Authority – provides a 25-percent tax credit on your Iowa state return in addition to the normal federal charitable income tax deductions for certain charitable gifts.
The charitable gifts must be made:
- Through a ”qualified” community foundation.
- To a permanent endowment fund which limits distributions to 5 percent.
- For the benefit of one or more Iowa charitable causes.
- By individuals, corporations or financial institutions.
Legislation requires that at least 10 percent of the donations be in amounts of $30,000 or less. This is good news for you, because it opens the availability of the tax credit funds to many individuals and small businesses. An additional benefit is that you do not have to itemize your taxes to take advantage of the state 25 percent credit!
How does it work?
Whether creating a new fund or donating to an existing endowment fund, the process is very easy. When you make a qualifying gift you may ask the community foundation to provide you with a simple one-page application that is ready to be signed and submitted when you file your income taxes.
The tax credit is awarded on a first-come, first-serve basis and may be claimed by individuals, businesses or financial institutions. Below is an example of what a donation may mean for you:
|Amount of Gift||$10,000|
|Endow Iowa Tax Credit||$2,500*|
|Net Federal Deduction||$10,000**|
|Federal Tax Rate||35%***|
|Federal Tax Saving||3,500****|
|Total Tax Savings||$6,000|
|Net Cost of Gift||$4,000|
What does it mean for Iowa?
In 2014, more than 3,898 donors took advantage of this program and the $6 million in Endow Iowa tax credits were awarded to more than 100 different community foundations and community affiliate organizations. The applications showed that almost $24 million in charitable giving was leveraged by the tax credit last year.
To easily calculate the benefits you may receive using the Endow Iowa program, use this convenient calculator tool. For more information about the program, visit the IEDA website or the Iowa Community Foundations website.
If you are interested in philanthropy and creating strong communities here in Iowa, please review the Endow Iowa program and consider donating to an Iowa Endowment fund. The Iowa Economic Development Authority and community foundations around the state are doing great things with the help of many donors – large and small.
Cathy A. Rottinghaus is Vice President of Commercial/Ag Banking in the Cedar Falls location.
* 25% of the charitable gift made to a permanently endowed fund at a community foundation – maximum annual Endow Iowa tax credit per taxpayer is $232,147.25.
** The entire amount of the gift is deductible on federal taxes – not state.
*** Individual marginal tax rates vary.
**** Assumes individual taxpayer utilizes Schedule A (itemized deductions on their federal tax return).
Source: Iowa Community Foundations