If you are charitably inclined, work for a nonprofit, or participate in charitable fundraising the following discussion may be relevant to you.
Both President-Elect Trump and the Republican-controlled House of Representatives have proposed significant changes to income tax policy. While not identical, both plans look to lower income tax rates for most Americans beginning in 2017 and equally important may include elimination or cap on itemized deductions.
Because of this, the implication for charitably minded individuals is clear – 2016 may be the perfect year to accelerate charitable giving in order to maximize the income tax benefit. Organizations that rely on fundraising from individuals should not be shy in discussing this advantage. With the current maximum individual Federal income tax rate at 39.6%, coupled with the potential future capping of itemized deductions, such acceleration may help to maximize the value of the charitable tax deduction this year.
If one is unsure of which organizations to contribute to, or is wary of increasing an annual contribution to any particular charity, the funding a Donor-advised Fund (DAF) this year may be the perfect solution. DAF’s are the essence of simplicity – working with a DAF provider, the individual establishes a charitable giving account with an initial, tax-deductible contribution and later recommends grants from the fund to the provider. While there are limitations, generally all recommended grants to so-called 501(c) organizations are allowable. The initial contribution varies by provider but is generally low ($5,000) and additional contributions are allowed. Grants out of the DAF may take place over many years. In this way, the DAF allows the donor to front-load charitable contributions and trigger the tax deduction now on potentially several years’ worth of donations.
Each DAF provider sets its own parameters such as minimum initial contribution, investment choices, grant size and fees. Contributions may include cash, appreciated stocks and certain types of illiquid investment that often require the use of a professional appraisal. And don’t worry about over-funding – a 5 year carry-forward provision currently exists in the tax law if the deduction is limited in the first year.
A Donor Advised Fund can typically be opened in a matter of days. Unlike Private Foundations, DAF’s can be opened at no cost with many qualified custodians and provide for the retention of the donor’s privacy. For more information on the benefits of a DAF or the account opening process please don’t hesitate to contact your Withum or PWM advisor for assistance.
A Donor-advised fund can be one of the most effective planning techniques to maximize charitable giving goals before the end of 2016.
We remind all readers that these tax proposals are fluid. Each situation is different and should be reviewed by your tax and investment advisors before implementing a plan.
Happy Holidays to All!
Monica Jalife, CFA, CFP, MBA | email@example.com
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.“