Untangling the Tax Cuts and Jobs Act (TCJA)Submitted by American Endowment Foundation on March 5th, 2018
By Eric Kinaitis
The Tax Cuts and Jobs Act (TCJA) provided a massive change to many aspects of traditional tax planning.
Recently, Laura Malone , VP-Corporate/Complex Giving at American Endowment Foundation (AEF) and Cathy Godshall, a Partner at Buckingham, Doolittle, & Burroughs, LLP, conducted a webinar entitled “Charitable Impact of the Tax Cuts and Jobs Act (TCJA) and IRS Notice 2017-73.”
Their discussion looked at:
- How the income tax and estate tax changes, increase of the standard deduction as well as the increased deductibility threshold of cash deductions can effect charitable giving.
- How the decrease of the corporate tax rate impacts using S-corp shares as a charitable gift.
- A review of IRS Notice -2017-73, and how that may impact future regulations concerning donor advised funds and private foundations in charitable giving.
Some of the highlights of their discussion are included below:
- A recognition that lower tax rates lower the value of all tax deductions, including charitable deductions. However, the assumption that the tax incentive is the primary driver of charitable giving is over-stated. Those who give to charity are primarily driven by the desire to support causes important to them.
-The percentage of tax rate reductions are greater for lower income tax payers; the percentage of tax rate reductions are less for higher income taxpayers. Hence, the impact on the altered tax rates for higher income tax payers is less of a disincentive than may be presumed. Entities such as donor advised funds (DAFs), whom receive a majority of their gifts from higher earning tax payers are less likely to feel any negative impact due to tax rate reductions.
-The standard deduction nearly doubled to $24,000(married) and $12,000(single). Personal exemptions were repealed at all income levels, and the TCJA permanently doubled the basic exclusion amount for estate, gift & generation skipping tax purposes from $5.6 million to $11.2 million. There are estimates that this change in the standard deduction may reduce those who itemize down to only 5% of all taxpayers. However, organizations like donor advised funds who receive contributions from higher income tax payers are less likely to feel a negative impact due to the fact that these high income earners will continue to be able to itemize.
- The “PEASE limitation” was eliminated. The PEASE limitation limited those tax payers who had an adjusted gross income (AGI) of $300,000 or more could take as itemized deductions. That limitation also effected what they could take for charitable deductions. With the removal of the PEASE limitation, those high income tax payers can now get a bigger tax benefit from their charitable gifts.
- Donors can gift S-corp stock to a DAF. In an effort to lessen the tax bite of Unrelated Business Income Tax (UBIT), a DAF trust can be utilized. This article can provide a greater detail on this topic.
- Charitable bunching: This concept allows a donor to use alternating years to take advantage of itemized deductions. A donor essentially prefunds two years of giving within one year in an effort to optimize their charitable deductions. A donor advised fund can be an ideal tool for this concept as a way to keep individual charitable support consistent. See an example here.
- Donors can prefund their charitable giving that they intend to give during their retirement years. See our example for clarification.
- 69% of the tax payers who itemized deductions only gave cash as their charitable gifts. Gifts of appreciated stock may prove to be a far better choice for many donors. Learn more on the topic here.
-IRS Notice 2017-73 touched upon a few topics:
- Stronger penalties if a donor grants to a charity in an effort to gain tickets for a personal use to a charity-sponsored event. New regulations would make it a violation of BOTH sections 4967 and 4958, increasing the potential donor excise tax from 125% to 150%.
- Donors can now utilize grant recommendations from a DAF to satisfy a pledge provided the following requirements are met:
- The DAF makes no reference to the existence of any charitable pledge when making the grant;
- The donor does not receive any benefit, directly or indirectly, that is considered more than incidental;
- The donor does not claim a charitable contribution deduction for the DAF disbursement, even if the charity mistakenly sends the donor a tax acknowledgement.
At American Endowment Foundation (AEF), we look forward to discussing these topics with greater depth and see how they can impact the interests of potential donors. Call us at 1-888-660-4508 or contact us today.
Recorded Webinar: "Charitable Impact of the Tax Cuts and Jobs Act (TCJA) and IRS Notice 2017-73"
Note: The information provided herein is for informational purposes only and should not be interpreted to constitute legal and/or tax advice. Donors should consult their legal and tax advisors regarding their specific situations.