Charitable Giving Strategies under the Tax Cuts and Jobs Act of 2018
by Bianca Kowal on Oct 15, 2018
How Might Donors Maximize the Tax Benefits of their Charitable Gifting Strategy under the New Tax Code?
Depending on your level of annual gifting and filing status, donors might want to consider bi-annual contributions. For example, the standard deduction for taxpayers married filing joint returns for 2018-2025 is $24,000. If your annual charitable gifts are anywhere from $15,000 to $20,000 you may want to consider doubling up this year and itemizing for a deduction in 2018 and not making a gift for 2019. By establishing a Donor Advised Fund ("DAF"), you can time your contributions in a way to benefit from the tax deduction while continuing annual gifts to your charities
What is a Donor Advised Fund?
A donor advised fund is an agreement between a charitable entity (including those established by Schwab Institutional or Fidelity) and a donor to hold and invest assets to be distributed to support other desired charities. Donors make gifts of cash or stock to the DAF. The portfolio manager for the DAF invests or reinvests contributions made to the fund. The donor can make ongoing, nonbinding recommendations to the DAF regarding how, when and where grants from the funds should be made. Additionally, the donor may offer some advice in terms of how contributions are invested. Further, the donor may direct grants to specific charities or name a surviving family member to direct distributions. While the fund is not obligated to follow any suggestions of the donor - hence the name “donor advised fund,” practically speaking the DAF generally follows the donor’s wishes. Because gifts to a DAF are considered an immediate and irrevocable gift to charity the donor receives an income tax deduction for the year in which the contribution is made rather than the year in which the charity receives the funds.
How Does this Support Philanthropic Goals?
Donor Advised Funds provide a vehicle in which to leverage your assets to support your philanthropic passions while maximizing your tax efficiency. Additionally, you can name family members to serve in your place upon your death. This is a great way for families to introduce philanthropy to the next generation. Sharing your philanthropic passions with your children and grandchildren can mean that the organizations that you care about will continue to be of value to your legacy.
Donor Advised Fund and Taxes
If you own low basis stock in your investment portfolio, rather than making gifts from cash flow you can make gifts from your portfolio directly to the DAF fund in-kind. The DAF is a charity and therefore can sell those appreciated assets with no capital gains consequence and reinvest the proceeds in a more diversified portfolio. You can take an immediate income tax deduction provided you itemize deductions on your federal Income tax return. Generally, deductions are limited to 50 percent of your adjusted gross income. However, from 2018 to 2025, the limit is increased to 60% for charitable contributions of cash to public charities. If you make a gift of long-term capital gain property (such as appreciated stock that has been held for longer than one year), the deduction is limited to 30 percent of your AGI. The fair market value of the property on the date of the donation determines the amount of the charitable deduction. Any amount that cannot be deducted in the current year can be carried over and deducted for up to five succeeding years.
How Can Seascape Help?
Determining your charitable deduction can involve many factors. We will review your tax returns, your philanthropic goals, and coordinate with your CPA to determine the most appropriate plan for your personal tax situation. Please give us a call soon if you would like to consider this charitable giving strategy.