Estate Planning Attorney Nick Taylor Answers Questions About Charitable Giving

Dec 27, 2018

As we approach the close of 2018, you might have questions about charitable giving, tax incentives and other related topics. Nick Taylor, an estate planning attorney with Fitzgerald Schorr in Omaha, offers some tips to help guide your end-of-year charitable giving decisions. 

Q. With all the major federal income tax changes that were passed last December, should donors be doing anything differently this year with respect to charitable giving?  

A. Donors should indeed look differently at 2018 and beyond. The new standard deduction has been increased to $12,000 for single individuals and to $24,000 for married couples, which in itself is good news. However, only if deductible items of all kinds exceed those figures will the taxpayer actually get additional deductions. Exceeding these new standard deduction amounts will be even more difficult for some taxpayers because the total deduction for property taxes and state income taxes is now limited to $10,000. 

Under these new rules, donors will likely get the best tax results for charitable contributions using one or more of the following three techniques:

  1. “Bunching” donations in one year and then skipping a year or two. In this way, a donor might create deductions in the first year by exceeding the standard deduction amount, and then in the next year or two get the benefit of the standard deduction (even without making many — or any — contributions). 
  2. Putting funds into his or her own “donor-advised fund” available through many financial institutions. By doing so the donor can count the total amount of funds deposited into such account as a current charitable contribution, even though the donor can direct distributions out to the charities over one or more years to come.
  3. Making contributions to charities by direct transfers from an IRA (for donors who are 70 1/2 and older). Although donors are not eligible for an actual deduction in this instance, because they do not have to recognize that transfer as reportable income, they are often in a better situation. The transfers per year are limited to $100,000 but will count in full toward the donor’s required minimum distribution.

Note: accelerating contributions into one tax year can be even more advantageous under the new law because charitable gifts of cash can now be deducted up to 60 percent of the taxpayer’s “adjusted gross income” instead of just 50 percent under the old rules.

Q. For those who have seen their investments in the stock market rise significantly in recent years, are there giving strategies that could be especially beneficial right now?

A. Appreciated assets are the best asset a donor can give during his or her lifetime and the easiest such asset to contribute is appreciated publicly traded stock. As long as the donor has held the asset more than 12 months, the donor can use the current fair market value of the stock at the time of donation as the value of the charitable gift, even though the donor has never paid tax on that built-in capital gain. Additionally, the donor can then retain more cash for future personal needs. In this way the donor can perhaps avoid having to sell stock in the future and thereby avoid capital gains tax. 

Q. While interest rates have been rising recently, we still live in a historically low-interest rate environment. Are there opportunities donors should be considering at this time?  

A.  A charitable gift annuity — in which the donor gives the charity cash in return for an annuity, typically for life — is a particularly attractive option during periods of low-interest rates on checking and savings accounts. These annuities currently pay very attractive rates, which increase with the donor’s age. For example, a 60-year-old donor could expect to receive approximate 4.7 percent for life; an 80-year-old would receive approximately 7.3 percent for life. In establishing a charitable gift annuity, the donor can count about half of the amount given to the charity as a charitable contribution, even with this lifetime annuity benefit back to the donor.

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