What Does the Tax Cuts and Jobs Act of 2017 Mean for Donors and Charities?
As the year-end approaches, donors and charities alike are worried about the implications of The Tax Cuts and Jobs Act of 2017 (TCJA). We’ve all heard some gloom-and-doom predictions of what the changes will mean both for donors and for charitable beneficiaries, mostly because many taxpayers are more likely to simply accept the standard deduction. But don’t fear — with some research and thoughtful planning, you can offer strategies to your donors to help them minimize their taxes while having significant charitable impact.
First, let’s examine the key changes for individuals in the new law:
* Income tax rates for most are now lower
* The personal exemption has been eliminated
* The TCJA nearly doubled the standard deduction
* Most itemized deductions were either limited or eliminated
* Owners of pass-through businesses including sole proprietorships now can deduct up to 20% of their net business income from their personal income taxes.
What do these changes really mean? Simply put, many donors will no longer be able to enjoy a charitable deduction along with other itemized deductions. The giant increase in the standard deduction means it’ll be much harder for individuals to realize the same tax benefit of charitable giving as in prior years.
As a development officer, you can help your donors be “in-the-know” by sharing the following strategies with them. Used separately or together, donors can maximize their personal benefit and their charitable impact:
* Accelerate charitable giving into the current year. Some of your most significant donors may find that accelerating their giving into this calendar year will enable them to itemize deductions and thereby reduce their tax liability.
* Give through a Donor Advised Fund (DAF). Anyone can open a DAF with an initial contribution of $5,000 or more, after which the fund can be professionally managed and invested for future growth. Contributions to DAFs are immediately tax deductible, so front-loading your contributions to the fund can help you itemize deductions in year one, while enjoying the standard deduction in subsequent years, all the while maintaining a significant level of annual giving.
* Make gifts of appreciated assets. Since donors avoid capital gains taxes on gifts of appreciated assets, they are often more advantageous than gifts of cash. Further, gifts of appreciated assets to a DAF can help realize a double tax benefit.
* Make an IRA Charitable Rollover Gift. Taxpayers age 70 1/2 or older with IRAs are required annually to take a minimum distribution (RMD) from their IRAs which is included in taxable income. By making a charitable gift of up to $100,000 directly from their IRA, these taxpayers can avoid including some or all of their RMD in their taxable income.
Every donor is unique, both with regard to their giving interests as well as their financial situations. As professional fundraisers, it’s our duty to help educate our donors, including by encouraging them to talk to their own tax advisors. Just as we strive to engage donors in their individual passions, so too should we help individuals give through vehicles most advantageous for them
by: Molly Galo, Senior Consultant HUB Philanthropic Solutions