Summer Legislative Updates & Looking Ahead to Sunsets
On Aug. 16, 2022, President Biden signed into law the Inflation Reduction Act. A few tax provisions made it into the final legislation (e.g., a corporate minimum alternative tax). Other items were taken off the table at the last minute, most notably the proposed elimination of the carried interest tax break. Thanks to the act's inclusion of $80 billion in budget increases for the Internal Revenue Service, taxpayers and their advisors can likely expect greater scrutiny from the IRS on complex or aggressive transactions in the years ahead as the IRS beefs up its expertise and invests in its enforcement operations.
Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions. Our team is watching this legislation closely because of the proposed inclusion of provisions that would adjust the annual $100,000* QCD cap for inflation and allow a one-time $50,000* QCD to a charitable remainder trust or other split-interest gift. SECURE 2.0 could pass through Congress by the end of the year.
While potential tax reform through budget reconciliation legislation may be top of mind for taxpayers and advisors, it's also important to remember that the Tax Cuts and Jobs Act of 2018 included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies.
In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range. Because assets transferred through lifetime gifts and bequests to charitable organizations are not subject to gift or estate tax, philanthropy may be an effective tax planning tool for even more taxpayers after 2025.
As your clients begin to set their philanthropic goals for the next several years, the team at Akron Community Foundation is prepared to help structure long-term strategies to maximize not only your clients' tax benefits, but also the benefits to the community. Our professionals are deeply familiar with the short-term, mid-term and long-term needs of our community, as well as the nonprofits that are working to address those needs. Our experienced team works with you to help your clients support community needs now and in the future through clients' donor-advised funds, field-of-interest funds, designated funds, and other vehicles established at the community foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support to improve our community, and you in your trusted role as the client's advisor.
*The 2024 limit for Qualified Charitable Distributions is $105,000. The 2024 limit for one-time QCD transfers to a split-interest gift is $53,000.
To learn more, contact Laura Lederer at 330-436-5611 or llederer@akroncf.org. We're always available to answer your questions about philanthropy or to schedule a personal consultation with you and your clients – all at no cost.
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This content is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.