As the year winds down, many clients will be thinking about their year-end charitable giving, and how it might be impacted by the Tax Cuts and Jobs Act[1] (TCJA). Despite the increased limit on cash contributions, the higher standard deduction almost certainly means that significantly less people will itemize. While the Council of Nonprofits[2] has estimated that charitable giving could decrease by $13 billion per year as a result of the new law, others are confident that most charitable giving is not motivated by tax deductions.
Whatever your clients’ motivations, it is important to be taxpayer specific when advising on the best way to give. What works for one group of donors will not work for others, and charitable giving can still be modified to offer tax benefits using the following techniques.
Donating appreciated securities
Gifting appreciated stock or other assets to qualified charities is hardly a new way of giving. In light of the new tax law, however, the benefits have changed. Donors used to be able to exclude the appreciation from their taxable income, and deduct the fair market value of the donated asset. Now, donors who take the standard deduction will avoid income taxation on the appreciation, but will not procure a charitable deduction for the donated assets. Those who continue to itemize should see the same benefits, although these could be offset if their income tax bracket has changed.
Bunching and Donor-Advised Funds
While likely impractical for most average taxpayers, there has been a buzz surrounding the benefits of bunching. Bunching means concentrating giving during certain years so that charitable deductions exceed the standard allowance. Taxpayers can then alternate between itemizing or taking the standard deduction each year. Clients who wish to give more consistently may consider a donor-advised fund (DAF), which will invest the bunched contribution, and then disperse it over multiple years as the donor wishes. Not all DAFs are created equal, so it is important to find the right rules, fees, and investments for your client.
Donations from an IRA
Giving directly from an IRA after age 70.5 continues to be a beneficial option under the new tax law. A qualified charitable distribution (QCD) will help your client meet the minimum distribution requirement for the year, and can be excluded from taxable income. This enables taxpayers to opt for the standard deduction and still receive a full exclusion of their contribution from income taxes.
A decrease in charitable giving is an unfavorable outcome for all, and providing support and communication to your client can help yield a beneficial solution. You can learn more about charitable gifting strategies in the BU Online Program’s Estate Planning course. Enroll today to get the expert advice you need to guide your clients through the charitable gifting process.
Best regards,
Phuong Luong, CFP® FP Facilitator,
Boston University Online Financial Planning Program
Carolynn Tomin, CFP®, Program Director
Boston University Online Financial Planning Program
[1] Kevin Brady, “Text – H.R.1 – 115th Congress (2017-2018): An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.,” Congress.gov, December 22, 2017, https://www.congress.gov/bill/115th-congress/house-bill/1/text.
[2] “Tax Cuts and Jobs Act, H.R. 1 Nonprofit Analysis of the Final Tax Law,” National Council of Nonprofits, last modified April 8, 2015, https://www.councilofnonprofits.org/sites/default/files/documents/tax-bill-summary-chart.pdf.