For the past century, the US tax code has been a
powerful driver of philanthropy, by rewarding generosity.
That’s poised to weaken with passage of the Tax Cut and
Jobs Act of 2017, which will effectively reduce the number of
taxpayers able to deduct charitable donations. The new rules
also impose a tax on large university endowments, and make
changes to the estate tax that could adversely impact many
non-profit organizations.
What can donors do? Fortunately, with some extra
planning, there are still ways that donors can receive tax
benefits. Some of these will expire in 2017 so it’s critical
to act fast. Donors should always consult their tax advisors,
but the following are strategies to discuss with them:
Just keep giving Under the new law, many organizations
serve vital public needs may find it more difficult to collect
donations and do their work. Donors should be mindful of
this, and continue giving even if they no longer benefit
from tax savings. The new tax law essentially “bakes-in”
higher tax deductions for most taxpayers (by increasing
the standard deduction), so many families may find it
within their means to continue contributing even without
the tax savings.
“Front-load” donations in 2017 The new tax law
won’t go into effect before 2018, so donors can still
take advantage of the long-standing, more accessible
tax incentives if they give before the end of the year
(effectively, Friday Dec. 29, 2017). As we near year-end,
donors who would make additional contributions in 2018
may be able to increase their write-offs by giving this year
instead, while the current tax code is still in effect.1
Consider “batching” future donations The new law
doesn’t eliminate charitable tax write-offs, but it makes
it harder to take them (by increasing the threshold for
itemized deductions).2 In many cases, “batching” — or
combining two or three years’ donations into one year
— can increase the likelihood of reaping tax savings.
Gift highly appreciated equities By gifting stocks or
other investments that have a low cost-basis, donors can
avoid high capital-gains tax payments. In doing so, donors
can effectively contribute up to 20% more, with the same
financial impact. Note that under the new law, taxpayers
would be forced to donate the oldest shares of an equity,
whereas the current tax code allows the donor to choose
the shares with the lowest cost-basis, regardless of the
date of purchase. As such, it may be advantageous for
some donors to make such contributions in 2017.
Contribute via an IRA rollover The IRS allows
individuals over 70.5 years of age to make gifts directly
from their IRA accounts, thereby avoiding income taxes
on the distribution. This approach effectively enables
taxpayers to write off contributions without having
to itemize.
The IRS imposes certain maximum donation write-offs. The new tax law
increases the limits for cash gifts from 50% to 60% of adjusted gross income,
and eliminates the “Pease limitations” that had capped itemized deductions for
higher income earners.
Charitable contributions can be written off by taxpayers who itemize their taxes
rather than taking standard deductions. Under the new law, itemization may benefit
families whose itemizations exceed $24,000 (or $12,000 for individuals). Itemization
will typically include: state, local or property taxes (up to $10,000) + home mortgage
interest (on up to $750,000 in debt) + charitable contributions.
Tax Reform Cuts Charitable Deductions…
… But with Some Planning, Donors Can
Still Write-Off Gifts, Particularly in 2017
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planning matters. This communication is not intended or written to provide legal or
tax advice. This communication also is not intended or written to be used, and cannot
be used, for the purpose of avoiding tax-related penalties. (IRS Circular 230 Notice).
All information has been obtained from sources believed to be reliable, but its
accuracy is not guaranteed.
There is no representation or warranty as to the current accuracy, reliability or
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performance and that actual results or developments may differ materially from those
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professional with any questions.
