According to the latest Giving USA Report, Americans gave an estimated $427.71 billion to charity in 2018. While direct gifts from individuals dropped slightly from 2017, giving through foundations enjoyed a record-breaking year, growing to an unprecedented $76 billion. This underscores the trend that more and more people are utilizing vehicles like their local community foundations to successfully navigate an increasingly complex giving environment.
Kira Wheat, CPA, a senior tax manager at DHJJ, serves a diverse client base, including high-net-worth individuals and closely held businesses. She has expertise in real estate, family office, service, and investment fund industries. Given Wheat’s vast tax knowledge, we asked her about the most effective ways to make year-end charitable gifts, as 2019 comes to a close.
Q: What factors should I consider before making a charitable gift?
A: Will your itemized deductions be more than the standard deduction this year and/or in future years? What is your income tax bracket now, and what do you expect it to be in the future? What are your liquidity needs? Do you want your giving to be anonymous? Do you possess appreciated and/or illiquid assets that could be donated instead of cash? Are you over 70½ and need to take any IRA required minimum distributions (RMDs)?
Q: How has the new tax law affected charitable giving?
A: Less people are now eligible to itemize and many have “lost” the benefit of their charitable deduction that had incentivized them to give. But with planning, multi-year giving can be implemented to still take advantage of charitable deductions. For example, “bunching” charitable contributions in certain years and taking the standard deduction in the off years could allow for a greater tax benefit. Donor-advised funds (DAFs) can be used to front-load bunched donations and allow donors to receive a charitable deduction, with actual grants being distributed now or in future years. Qualified Charitable Distributions (QCDs) from IRAs and charitable lead or remainder trusts are other useful strategies to consider.
Q: I am still eligible to itemize. What are the best assets to consider gifting and the current limitations on charitable deductions?
A: Charitable gifts of appreciated assets held more than one year such as securities, real property, interests in closely-held businesses, and other illiquid assets can offer greater tax savings than gifts of cash. The deductibility limitation for cash donations to qualified charities is 60% of adjusted gross income (AGI). Donations of appreciated assets are limited to 30% of AGI, but the excess can be carried forward for five years. Gifts to private foundations are also deductible but are limited to 30% of AGI for cash donations and 20% for appreciated assets.
Q: Can I deduct amounts gifted to family and friends?
A: Gifts to individuals do not qualify for charitable deductions, but you can use the annual gift exclusion ($15,000 per person/$30,000 per couple) to make tax-free gifts to as many people as you choose.
Q: Are there giving incentives for those ages 70½ and up?
A: Yes. Qualified charitable distributions (QCDs) count as IRA distributions from Traditional IRAs and can be used to satisfy all or a portion of your annual required minimum distribution (RMD), for income you don’t need. QCDs are excluded from taxable income and are beneficial whether you itemize or take the standard deduction. However, they must be transferred to qualified charities directly from your account and not be first taken as distributions. While QCDs cannot be made to private foundations, supporting organizations, or DAFs, they can be given to community foundations for various purposes and directly to your favorite charities, religious institutions, and public organizations (e.g., park districts, libraries, etc.). The annual maximums allowed for QCDs are $100,000 per individual and $200,000 per married couple.
Q: Are there opportunities for those selling a business?
A: Yes. Prior to selling, meet with your advisors to create a plan for managing the proceeds. You could donate all or part of a business to a DAF or other charitable vehicle prior to the sale or use the proceeds for outright gifts to benefit causes or charities afterward to mitigate gains incurred by the sale.
Q: What if I want to make a gift now and also retain some income for myself or loved ones?
A: A charitable gift annuity is a contractual agreement in which a donor transfers assets as a gift to a charity and, in return, the charity pays a fixed annuity to one or more beneficiaries for their lifetime or a period of years with the residual designated to benefit the charity. Similarly, a charitable remainder trust is an irrevocable trust that generates a potential income stream for the donor or other beneficiaries for a set period of time, with the remainder of the donated assets going to one or more charities. With both, the donor will receive a charitable deduction for a portion of the gift and the beneficiaries will receive future income.
Want to learn more about how the Foundation can help you accomplish your charitable goals? Contact Michael R. Sitrick, JD, CFRE, vice president for advancement, at firstname.lastname@example.org or 630.598.5285.
The content provided in this article is for informational purposes only and should not be construed or relied upon as legal or tax advice. The DuPage Foundation recommends that you consult with your tax and other advisors prior to making a significant charitable gift.