If you’re a donor to charity, you must already be exhausted: Not only have you been bombarded with wrenching news of disasters and relief appeals – from everybody from former U.S. presidents to J.Lo – but political appeals may have kept your phone ringing. Luckily, the hot stock market may be aiding your ability to give.
[ibd-display-video id=2531707 width=50 float=left autostart=true] But now, as the year ebbs, a doozy of a giving issue is emerging: tax reform and its possible effects on giving. It’s what Michigan-based consultant, Michael Montgomery, calls “the elephant in the room.” And many believe its implications for your giving could stretch well beyond 2017.
While tax benefits aren’t the only incentives for giving, they are a consideration for many donors, experts say. And thus, with the current rollout of tax reform proposals, uncertainty is rising about what may pass in Congress, if anything, and its implications for giving. But from what’s seen so far, if the current plan passes, giving’s tax benefits seem destined to apply to fewer people in the future. And, for donors overall, since current tax rules might provide more generous benefits for giving than future rules, donors should consider making bigger charitable gifts this year, some experts say.
To be sure, tax reform’s provisions are still evolving in Congress. But key elements of the House of Representatives’ now-proposed tax reform plan that could affect people’s philanthropy include:
- A near-doubling of tax filers’ standard deduction.
- Reducing tax rates.
- Abolishing many noncharitable itemized deductions.
- Estate tax: Doubling the current exemption and then ending the tax in 2024. (As of now, the Senate’s version would double the exemption but would not end the tax.)
“Of highest concern is the near-doubling of the current standard deduction limit for taxpayers,” holds Tom Bognanno, CEO of Community Health Charities. “The move could reduce the number of people who itemize tax deductions from almost one-third of tax filers to about 5%.” In turn, that “would remove the tax incentive for some $95 billion of annual charitable giving and could result in a loss of up to $14 billion in donations.”
Eliminating many noncharitable tax deductions, such as the deduction of state and local income and sales taxes from federal taxes, could also deter itemizing.
The upshot: If people don’t itemize, they won’t be able to get a tax deduction for their charitable giving, points out Eugene Steuerle, of the Urban-Brookings Tax Policy Center.
As for lower tax rates: In general, the more that tax rates are cut for itemizers, the less they save on taxes by making a charitable gift. But because of its provisions, the current tax proposal will affect specific donors in various ways. Key factors determining specific donors’ tax bill will include where they live and whether they’d be affected by an elimination of deductions, such as those for state and local income taxes and real estate taxes, says Elda Di Re, partner, private clients services, at the accounting firm of EY.
As for 2017 giving so far? Reports are mixed through this year’s third quarter.
Some plus signs: During the January-September 2017 period, Schwab Charitable donor-advised fund accounts logged a 46% gain in contributions, and a 16% rise in grants to charities, vs. the same period a year earlier, said Kim Laughton, president of Schwab Charitable. During the same nine months of 2017, Vanguard Charitable donor-advised fund (DAF) accounts posted a 15% rise in contributions and a 25% increase in grants vs. the year-earlier period, reports Jane Greenfield, president of Vanguard Charitable.
However, one measurement – that of the Growth in Giving Initiative – shows a 4% slide in charitable giving in this year’s first nine months vs. the year-earlier period. A drop in donations of $1,000 or more caused the overall decline, said Jon Biedermann, vice president of software producer, DonorPerfect. That firm, along with Bloomerang and NeonCRM, among others, collects data from charities for the GiG database.
Taken together, this year’s raft of giving factors – from multidisasters, to a possible tax overhaul – may seem daunting to donors. But evidently, there are some useful guides through this thicket. Among the giving tips that experts suggest:
- To capitalize on giving’s tax benefits under current law, set up, or contribute to, a donor-advised fund by this year’s end. This way you could claim the tax deduction this year and grant money to charity in the future through your DAF, says consultant Michael Montgomery.
- “Give someone else’s money,” suggests Bognanno of Community Health Charities. See if your employer matches employees’ charitable contributions, and consider making a gift through your company’s workplace giving program. Many companies match employees’ charitable contributions – some on a dollar-for-dollar basis, which would double your donation and its impact.
- If you’ve already given to charity this year, say, to disaster relief, and your charitable giving funds are limited, consider a smaller ongoing donation to a charity you ordinarily support. This could be a recurring donation of, say, $10, or whatever you can afford, suggests Michael Thatcher, president and CEO, of Charity Navigator.
- Particularly if you’re currently in the top income tax bracket, strongly consider making a charitable gift this year, especially using appreciated securities. This way, you’d get the maximum possible deduction on the fair market value of the stock being donated, and you wouldn’t pay capital gains tax on its appreciation, says Di Re of EY.
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