Main BOS Logo

February 21, 2018

Benevolence in the New Tax Era

Please read important disclosures HERE.

Over the Christmas holiday, I had an unforgettable trip to South Africa and Zambia. In addition to living among elephants, giraffes, and lions for a few days, I visited several villages along the Zambezi River. I came away from the experience with a better understanding of the diversity of life around the world, the extreme poverty that still exists in the 21st century, and the importance of helping others when you can.

Judy Gordon - Benevolence in the New Tax Era Image

Being charitable happens in a variety of ways, many of which can impact how individuals file their taxes each year. The recently enacted Tax Cuts and Jobs Act of 2017 preserved the itemized deduction allowed for charitable contributions. However, the standard deduction amounts were raised from $6,350 to $12,000 for an individual taxpayer and from $12,700 to $24,000 for joint filers starting in 2018. For some taxpayers, it may no longer make sense to itemize deductions —and fewer taxpayers who itemize deductions might mean fewer charitable donations. Further, with the gift and estate tax exemption limit raised to $11.2 million per couple from 2018 through 2025, the incentive to leave bequests to charities to lower the tax burden to heirs has been diminished.

In a time when there are fewer government services, the role of charities and other nonprofits in filling the gap in social services has become much more critical. In addition to meeting the needs of the homeless, the poor, and the sick, charities provide emergency relief for those affected by natural disasters, including the wildfires and mudslides in California and hurricanes in Texas and Puerto Rico last year, and support for education, arts, and other community services. These organizations will continue to depend upon the support of individual donations despite the likely loss of an income or estate tax deduction, which may make it more important than ever to consider donating with your heart.

If charitable giving is important to you, depending on your circumstances, you may consider one of the following ways to help make the most of your contributions:

Consider establishing and funding a donor-advised fund (DAF) or giving a large donation to a charity in one tax year.

The new tax laws for itemizing deductions will change the way to think about structuring charitable donations. A DAF, a charitable investment account that exists for the sole purpose of supporting charitable organizations, allows you to consolidate your charitable contributions into one large donation in a single year, while preserving your ability to distribute to your favorite charities when you are ready. Establishing a DAF and or donating a greater amount to a DAF or other charity in a single tax year could generate an itemized deduction above the standard deduction.

Make annual grants from your DAF.

Subject to the new tax rules on itemized deductions, taxpayers will continue to receive a deduction for donating to a DAF. Unlike private foundations, DAFs are not subject to annual minimum distribution rules. With the risk of fewer outright donations to charities because of the tax laws, it may be more important than ever to transfer funds from your DAF to the charities of your choice to support their missions.

Make a qualified charitable distribution (QCD) from your individual retirement account (IRA).

If you are over 70 ½ years old and have a regular IRA, you can direct up to $100,000 per year to charities in lieu of taking the money as your annual required minimum distribution. With a QCD, you do not have to pay tax on your IRA distribution and you can direct the money to your favorite charities.

Consider giving with appreciated securities.

You may be able to make a larger impact by donating long-term appreciated securities directly to charity. Unlike donating cash or selling your appreciated securities and contributing the after-tax proceeds, you might be able to avoid paying capital gains tax while increasing your gift and your itemized charitable deduction.

Volunteer your time.

If you plan to donate less money because of the new fiscal rules, one of the best and simplest things to do to help a charity is to give your time. Contact local charities whose programs interest you and speak with the organization’s volunteer services coordinator. Additionally, many charities would benefit from professional services assistance, such as legal work, accounting, writing, and fundraising.

Focus on charities that align with your values.

With so many charities to choose from, it can be confusing to decide which charities should receive your donations. Clarify your values, ask yourself what causes are important to you, and donate to charities that align best with your values.

Tax changes are inevitable and something that we cannot control. However, while one person’s charitable giving may not change the world, it has the potential to change someone’s life. It’s often been said: “We make a living by what we get; we make a life by what we give.”

Please contact your B|O|S advisor if you wish to talk about the options available to structure your 2018 charitable gifts.

Please read important estate planning disclosures here.

Filed under: Financial Planning

back to all posts

Get B|O|S Perspectives
in Your Inbox