Endowments are a sustainable forever gift that generally qualify for a deduction on both your federal and state income tax return. Many donors choose to establish or add to existing endowment funds to provide a vital base source of funding that may allow a benefitting organization to carry on, even in lean years.
ND State Tax Credit for Endowment Gifts
If you are a North Dakota taxpayer, you may be eligible to claim a credit of 40% on a minimum donation of $5,000 to a qualified endowment at the Community Foundation through the North Dakota Charitable Income Tax Credit. This is on top of the savings you receive on your federal tax return by itemizing your qualifying charitable donations. By taking advantage of both the state tax credit and the federal tax deduction, you can significantly lower the net cost of your contribution and triple its impact.
All of the Community Foundation's endowment funds qualify for this tax credit!
Individuals may receive a state tax credit for a contribution for $5,000 or more (lump sum or aggregate in one year) to a qualified North Dakota endowment. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum credit of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2011.
Example: Mr. Jones, a North Dakota resident, donates $20,000 in cash to an endowment fund at the Community Foundation. He receives an $8,000 tax credit (40%) on his North Dakota return. If he is in the 28% federal tax bracket, his federal tax savings is $3,360 (28% of $12,000). The "cost" of his $20,000 gift is offset by $11,360 in tax savings.
Businesses (C corporations, S corporations, estates, limited liability companies, trusts, and financial institutions) that pay ND income tax may take a 40% credit up to a total of $10,000 for gifts to the qualified endowment fund of a qualified North Dakota charity. Effective for taxable years starting in 2011.
In all of the above, the credit may be carried forward for 3 additional tax years if it cannot all be used in one year.
All of the Community Foundation's endowment funds qualify for this tax credit!
Individuals may receive a state tax credit for a contribution for $5,000 or more (lump sum or aggregate in one year) to a qualified North Dakota endowment. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum credit of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2011.
Example: Mr. Jones, a North Dakota resident, donates $20,000 in cash to an endowment fund at the Community Foundation. He receives an $8,000 tax credit (40%) on his North Dakota return. If he is in the 28% federal tax bracket, his federal tax savings is $3,360 (28% of $12,000). The "cost" of his $20,000 gift is offset by $11,360 in tax savings.
Businesses (C corporations, S corporations, estates, limited liability companies, trusts, and financial institutions) that pay ND income tax may take a 40% credit up to a total of $10,000 for gifts to the qualified endowment fund of a qualified North Dakota charity. Effective for taxable years starting in 2011.
In all of the above, the credit may be carried forward for 3 additional tax years if it cannot all be used in one year.
ND State Tax Credit for Planned or Deferred Gifts
Individuals may make a qualified deferred gift to a qualified ND nonprofit organization or to a qualified ND endowment fund. The Community Foundation of Grand Forks, East Grand Forks & Region and its component funds are considered qualified charities. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2007.
Example: A couple enters into a $200,000 charitable gift annuity agreement with the Community Foundation. The IRS allows them to deduct $100,000 from their federal taxable income as a charitable gift. The couple would qualify for a $20,000 ND Income Tax Credit. They could take up to 4 years to take the credit against their ND income tax liability. The credit is limited to the amount of their income tax liability.
Example: A couple enters into a $200,000 charitable gift annuity agreement with the Community Foundation. The IRS allows them to deduct $100,000 from their federal taxable income as a charitable gift. The couple would qualify for a $20,000 ND Income Tax Credit. They could take up to 4 years to take the credit against their ND income tax liability. The credit is limited to the amount of their income tax liability.
Definitions Under State Law
This information is provided for educational purposes only. Please consult your own attorney, accountant, or financial advisor for advice on your situation.
Qualified nonprofit organization: A qualified nonprofit organization is a tax-exempt charitable organization under federal income tax law that meets either of the following sets of criteria:
Qualified endowment: A qualified endowment fund is a permanent, irrevocable fund that is held by a qualified nonprofit organization (or by a bank or trust company on behalf of the qualified nonprofit organization); is comprised of cash, securities, mutual funds, or other investment assets; is established for a specific religious, educational, or other charitable purpose; and is only allowed to disburse the income from, or the increase in value of, the assets contributed to the fund.
Planned Gift: A planned gift is a gift that qualifies as a charitable contribution for federal income tax purposes and is made using one of the following gifting methods:
Qualified nonprofit organization: A qualified nonprofit organization is a tax-exempt charitable organization under federal income tax law that meets either of the following sets of criteria:
- It is incorporated or established in North Dakota and maintains a physical location in North Dakota.
- It is incorporated or established in a state bordering North Dakota; maintains a physical location outside North Dakota that is within five miles of a North Dakota city with a population of 5,000 or more that does not have a hospital; and supports or benefits a hospital, nursing home, medical center, or any combination of these.
Qualified endowment: A qualified endowment fund is a permanent, irrevocable fund that is held by a qualified nonprofit organization (or by a bank or trust company on behalf of the qualified nonprofit organization); is comprised of cash, securities, mutual funds, or other investment assets; is established for a specific religious, educational, or other charitable purpose; and is only allowed to disburse the income from, or the increase in value of, the assets contributed to the fund.
Planned Gift: A planned gift is a gift that qualifies as a charitable contribution for federal income tax purposes and is made using one of the following gifting methods:
- Charitable remainder unitrust (CRUT)
- Charitable remainder annuity trust (CRAT)
- Pooled income fund trust
- Charitable lead unitrust (CLUT)
- Charitable lead annuity trust (CLAT)
- Charitable gift annuity
- Deferred charitable gift annuity
- Charitable life estate agreement
- Donation of a paid-up life insurance policy
