Welcome to 2018!
As I reflect on the events of the last twelve months, I find myself focused on the Tax Cuts and Jobs Act of 2017, passed just before the New Year dawned, and its impact on philanthropy. The bill, which provides the most comprehensive revision of the tax code in decades, left many scrambling to understand the newly wrought changes and their implications.
Giving is a deeply personal act. Most donors do not cite tax implications as the primary motivation of their philanthropic activities. Instead, key drivers of philanthropy tend to be rooted in personal values, an organization’s mission, and a desire for social change. That said, we cannot ignore the role the IRS plays in how we translate our assets into an expression of generosity. Phila Engaged Giving supports legislation that fosters and encourages philanthropy in making meaningful financial gifts to organizations that best align with their interests. We will track and monitor all legislation impacting philanthropy and continue to report our findings here.
As the weeks and months unfold, we will gain a clearer picture of how the new bill will impact the philanthropic sector. In the meantime, there are a few certainties. Below is a bird’s-eye view of tax code changes and how they might affect philanthropic giving and you as a donor.
The Charitable Deduction
Despite fears leading up to the passage of this bill, the philanthropic community was relieved to find that the Charitable Deduction remained intact under the new tax code. As before, you may deduct charitable contributions of money or property to qualified organizations if you itemize your deductions. For some making large donations, the new code may even provide further benefit; for example, the maximum amount for charitable gifts deducted from a donor’s gross income increased from 50% to 60%.
The Standard Deduction
The Standard deduction taxpayers can take without itemizing each of their charitable gifts during the year was doubled from $6,000 to $12,000 for individual filers and from $12,000 to $24,000 for couples. The expansions will likely increase the number of taxpayers choosing the standard deduction rather than itemizing those gifts. Charities fear that the modification has the potential to disincentivize charitable giving, especially for those giving between $1,000 and $10,000 a year, because people who no longer choose to itemize their deductions may also decide not to donate to nonprofits. The effect of the modification of the Standard Deduction is the new tax code’s greatest unknown in terms of impact on charitable giving.
The Estate Tax
Like the Standard Deduction, the Estate Tax was doubled from $11 to approximately $22 million for couples, which shields all but the very wealthiest from the tax. Previously, the estate tax served as an incentive to the wealthy to donate parts of their estates to avoid a penalty. While its absence has the potential to impact larger charitable gifts, this is far from certain, as the overall tax environment with respect to philanthropy remains positive. We will have a clearer picture of the positive or negative impact on charitable giving in the months to come.
Donations of Appreciated Assets
The rules that allow people to donate appreciated securities and other assets to charities to avoid capital gains taxes did not change.
Donations from Individual Retirement Accounts (IRAs)
The rules on charitable donations made from IRAs remained intact; however, donors may revisit these kinds of gifts, which now appear more attractive relative to other options. People over seventy and a half must still make minimum distributions from their IRAs and are taxed on the amount they use; however, they are able to donate up to $100,000 to charity tax free while still counting for the minimum distribution. That begins to sound like a good decision when compared to leaving an IRA in your estate at death.
Donor Advised Funds (DAF)
There are no changes in the new tax code that impact Donor Advised funds. Donors who experience a liquidity event or otherwise have a high taxable income in one year, however, can as before contribute multiple years’ philanthropic giving into their DAF. This enables them to receive a tax deduction for the entire sum at one time while still benefiting from the standard deduction in years following.
Our deep desire to share with others our good fortune may be simple, but – sadly - can get caught in a web of rules and regulations. I hope this brief summary of some of the changes and implications of the Tax Cuts and Jobs Act of 2017 on philanthropy will spur new thoughts, insights, and conversations about your plan for giving in 2018. While its impact is still unfolding, my take is that the net result of the modifications will be neutral for most donors.
As always, I suggest that before you make a final decision on your philanthropic program, you consult with your planning team, including your financial, tax, and philanthropic advisors; estate planning attorney; and insurance brokers, to ensure that the change in the tax code results in a compassionate and thoughtful deployment of your charitable funds that best serves you, your family and your community.
Please feel free to contact us at Phila Engaged Giving if you’d like help understanding the evolving community needs resulting from the introduction of the new tax code. We are happy to assist you as you navigate your philanthropic path forward.
Here’s wishing you a Happy and Prosperous New Year!