Making smart charitable giving choices
By Jesse Hurst, CFP, AIF
Impel Wealth Management
There were many benefits that came as a result of the 2017 tax law changes. The tax code was simplified, eliminating many deductions and loopholes. The standard deduction was doubled for most individuals and families. And, once you got above the lowest tax bracket, rates generally dropped by 3% for most people.
However, one unintended victim of tax simplification has been 501(c)(3) charitable organizations that rely on donations for their philanthropic operations. Prior to the new tax law, approximately 46.5 million taxpayers itemized deductions. However, according to estimates from the nonpartisan Joint Committee on Taxation, only 18 million taxpayers itemized deductions in 2018. This means that approximately 88% of tax filers took the standard deduction and could not write off their charitable donations.
Since fewer people are itemizing deductions, many are less incentivized to make charitable gifts. According to a June report by Giving USA, individual donations fell by approximately 3.4%, adjusted for inflation, in the first year after the new tax act. As a result, many charitable organizations are being funded at lower levels. This includes faith-based organizations and the many charities that serve the needs of those less fortunate and at risk.
There are several strategies and options to navigate the new tax law and maximize your charitable giving. For example, donors who are 70 1/2 years or older can make qualified charitable distributions from their IRA. This technique is now a permanent part of the tax code. If you are no longer able to itemize deductions, any gifts you make to charity are done with after-tax dollars from your bank or investment accounts. By having funds sent directly from your IRA to a 501(c)(3) qualified charity like Akron Community Foundation, you can use pretax dollars to make these charitable contributions.*
Not only do you avoid paying taxes on the distribution, the receiving charity also does not pay any tax on the gift. This helps maximize your tax benefits and may allow you to be more generous to the institutions you care about. Your benefit is three-fold: You avoid paying the usual taxes, satisfy your required minimum distributions, and support the causes that matter to you.
Since the charitable giving landscape has become more complex, it is important to be intentional in planning ahead. Akron Community Foundation and the members of our Professional Advisor Council are here to help. We stand ready to have meaningful conversations with you about how you can intelligently fund the charitable organizations you care about.
*The law allows donations to a qualified public charity, but not to donor-advised funds, supporting organizations or private foundations.
Securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.