Jim Jacobs: Maximize giving in a new tax climate
January 29, 2018
When discussions began in Washington, DC, about a new tax law, non-profits anticipated that lower taxes for high-earning families and individuals could result in increased philanthropy. My wife and I worked with the Baltimore Community Foundation staff to create a campaign that would leverage income generated from potential tax cuts by having donors pledge to commit a portion of their tax savings to charitable organizations or causes of their choosing.
But this was not to be. Instead, we have a new tax code that appears to result in many Marylanders paying only slightly less in taxes and many others paying more. Those in the middle-income bracket will benefit from the doubling of the standard deduction to $24,000. However, this also may decrease their incentive to make charitable gifts if the total of their allowable deductions, together with potential charitable gifts, does not exceed the standard deduction. Simply stated, donations to non-profit organizations will not yield any tax benefits for them.
Chiefly as the result of the limits on deductions for state and local taxes and mortgage interest payments, tax reductions are not projected to be nearly as significant for high-earning families and individuals residing in Maryland. We hope that those who will pay less in taxes will use a portion of their tax savings for increased charitable giving. But many of us may be paying more in taxes.
Families with established foundations and donor-advised funds will not feel the immediate impact. However they will have to carefully plan how they make additional contributions of their assets, either directly to a non-profit entity or to their already established foundation or fund.
It has been suggested that if maximum deductibility is important, donors, whether or not they have a donor-advised fund or foundation, should consider making gifts every other year. For example, in 2018 make two years’ worth of donations to cover 2018 and 2019 charitable giving goals, which may allow itemization of deductions for that year. Then few, if any gifts would be made in 2019. In 2020 the strategy would be repeated, making larger gifts in 2020 to cover both that year and 2021.
Families with donor-advised funds may consider employing the same approach. The advantage for them is having more discretion for when to make the recommendations for gifts from the funds. For example, the larger gift can be made to the fund in 2018 to cover recommendations intended to be made for both 2018 and 2019, and the recommendations for 2019 can be delayed. There would then be no donation to the donor-advised fund in 2019.
For most donors, taxes are not the motivation for charitable giving, however, maximizing the deduction can allow increased gifts. It is important to consult with your financial and tax advisors regarding how to employ tax-saving strategies to further your charitable giving goals.