12 Signs During Tax Season That Clients Need Help with Charitable PlanningSubmitted by American Endowment Foundation on March 25th, 2019
By Ken Nopar, Senior Philanthropic Advisor
Increasingly, clients have been discussing charitable planning with their tax and financial advisors, especially since the 2017 Tax Cuts and Jobs Act. Though some clients made changes in the past year or two by bunching donations or establishing donor advised fund (DAF) accounts, many still have not.
Tax season is often the ideal time to be able to identify the signs that clients need help since there is frequent interaction with clients as they provide information to CPAs for tax preparation. Some of the indications include:
- Clients have appreciated assets that they could have donated, but instead wrote checks or used their credit card.
- Clients are approaching retirement and their income is large. They could make significant donations to a charitable vehicle and receive a greater tax benefit now instead of in the future when their income will be less. They then will be able to continue to make grants from their vehicle since they funded it earlier.
- Clients are surprised with their smaller refund or larger required tax payment. Bunching several years of donations at one time could help their tax situation in one year and enable them to take the new higher standard deduction in subsequent years.
- Clients need to pay significant capital gains taxes that may have been avoided or minimized had they donated those assets to charity.
- Clients can’t find tax-receipt letters from charities or don’t recall if they contributed by check, credit card, stock, or other means.
- Clients wait until the end of the year to make their donations. These late donations create stress for their wealth and tax advisors, the charities they support, and the donors themselves.
- Clients donate different amounts or support different charities every year.
- Clients are frustrated with the process, the paperwork, the responsibility, the frequent solicitations from charities, and whether their donations are appreciated or if they are having an impact.
- Clients try to deduct contributions for which they are not entitled, such as the full amounts for gala tickets or tables, auction items, or golf outings.
- Clients have private foundations but do not follow the rules, are overwhelmed by the reporting and operating requirements, complain about the costs, or are concerned that the IRS may fine or penalize them for violations.
- Clients are getting ready to sell a business or other asset and could donate some or all of it and avoid capital gains taxes.
- Clients did not follow the advice of their tax or financial advisors the previous year and did not establish a donor advised fund.
Once an advisor can see that their client needs help, they should determine whether it makes sense to donate directly to charities or establish a donor advised fund . Private foundations are also an option though they are rarely established unless there are compelling reasons to do so. There are now 460,000 DAF accounts, up from 150,000 ten years ago, while the number of private foundations remains the same at about 80,000. Many foundations have converted to DAFs or have established complementary DAFs.
Though advisors may not have the time during tax season to fully discuss options with clients, beginning the conversation now is beneficial for everyone so decisions can be made soon and not postponed for yet another year.
Should clients agree that opening a donor advised fund account is the best option, advisors should help their clients select the most appropriate DAF sponsor since each has different rules and policies. On their own, clients may select a DAF with high fees or limited succession, granting, or investment options, or may choose one that unlike AEF, does not allow their financial advisor to manage the assets at any amount.
Tax season is often the ideal time to broach the subject with clients. Though clients may not always ask for help with their charitable planning, they would welcome input if they understood that it would help them more effectively and efficiently achieve their philanthropic goals.
This guidance can also help clients feel a greater sense of satisfaction and accomplishment with their charitable giving. The discussion can also help advisors by deepening their relationships with these clients and may also help facilitate introductions to their clients’ family members, friends, and colleagues.
At American Endowment Foundation, we look forward to discussing your circumstances and helping determine the right path for you or your client. Contact us or call at 1-888-660-4508.