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PNC Tax Reform and Philanthropy: CENTER FOR Exploring Why and How You Give FINANCIAL The new tax law will have sweeping implications on charitable giving, creating a greater urgency to examine what motivates your philanthropy INSIGHT and to review your personal approach. For the majority of Americans, the Are you seeking to engage PNC Center for tax overhaul has altered or reduced family members to help Financial InsightSM builds many of the financial incentives for generations develop wealth bridges from thought to action, making charitable donations. But management skills? creating practical, applicable charitable giving is rarely driven Are you seeking strategies to help benefit you solely by the desire to trim tax bills. opportunities to discuss and your family. In fact, most individuals and families and share family values give for a variety of reasons and and legacy? support organizations in whose Are you seeking a tax 1 missions they believe. Still, 18% deduction? of donors primarily make gifts to Do you make charitable receive tax benefits. As this new tax contributions for a era ushers in, we believe it is an ideal combination of reasons? time to examine why you give as well as the vehicles you use to give. The Tax Implications Why You Give Simply put, the Tax Act and Jobs Act2 is anticipated to result in A key factor to determining the the elimination of the charitable impact of the new tax legislation deduction for approximately 90% on your charitable giving and the of U.S. taxpayers, who will likely means you use to make donations is choose to take the standard to understand why you give. Below deduction. The Tax Policy Center are some questions to review with estimates 91-95% of taxpayers will your family and your advisors to take the standard deduction while help clarify your motivations. the Joint Committee on Taxation What drives you to support estimates over 90% will. specific causes and Many families of wealth will, organizations? however, likely continue to itemize. Do you have an overarching For donors who do itemize, the reason for being tax rules for charitable giving philanthropic in general? remain complicated. Tax benefits Do you have both long- and vary depending on the form of short-term goals you are contribution. For example, cash, Contributing Author: trying to achieve? appreciated stock, or artwork come Anne B. Hennessy, CAP® Senior Resident - Philanthropy 1 2016 U.S. Trust Study of High Net Worth Philanthropy http://www.ustrust.com/publish/ content/application/pdf/GWMOL/USTp_ARMCGDN7_oct_2017.pdf 2 Officially titled “To provide for the Reconciliation pursuant to titles II and V of the concurrent resolution on the budget for the fiscal year 2018.” January 2018 2 with their own set of rules, which vary the nontax reasons for using these based on the organization donated to. strategies. (For details on the specific changes in Donor-advised funds (DAFs) the tax code, please see chart on are a low-cost, simple method page 4.) Additionally, there are limits to to administer your charitable how much is tax deductible in a given giving. DAFs provide the year. To gain a clear understanding opportunity to engage family of how the new tax laws affect your members who may serve specific situations, we recommend you as advisors and successor speak with your tax advisor. advisors. Advisors can recommend grants when they Itemizers May Benefit from choose, in the amount they New Provisions choose, to qualified charities The act contains a few provisions that from a DAF. For those who may encourage charitable giving by itemize, DAFs may provide an individuals who itemize. It raises the immediate tax deduction. limit on cash contributions for those Charitable lead trusts allow who itemize from 50% of adjusted a donor to make charitable Charitable Deductions gross income (AGI) to 60% of AGI. gifts during their lifetime This benefit expires after 2025. by providing a charity of May be Back There is no change for noncash gifts. the donor’s choice with an income stream. These trusts The Universal Charitable Additionally, the Pease limitation Giving Act (H.R. 3988/S. 2123) are frequently used as a on itemized deductions for higher is pending legislation that technique to delay gifts to income individuals has been repealed. would allow non-itemizers to family members. They are also The Pease limitation reduced the claim a charitable deduction used to shelter appreciation value of most itemized deductions of up to one-third of their and capital gains. Depending standard deduction, or when a taxpayer’s AGI reached a on the donor’s unique financial $4,000 for individuals/$8,000 certain point. for couples. situation, use of charitable Those with estates in excess of lead trusts may reduce the the new estate tax exemptions of donor’s estate and gift taxes. $11.2 million for individuals and Charitable remainder trusts $22.4 million for couples may allow a donor to receive an continue to benefit from strategies income stream and make a maximizing estate tax deductions and charitable gift when the trust minimizing the value of their estate. term ends. These trusts are Those with estates that fall within the frequently used for highly exemptions should note this provision appreciated assets to shelter expires after 2025 and that the estate appreciation. They are also tax could be amended again prior to commonly used to minimize 2025. Since 2001, the estate tax has capital gains. Depending been amended over 30 times. on the donor’s financial circumstances, the donor may Weighing Gifting Vehicles receive an estate deduction There are a number of strategies as well as reduced estate and and vehicles that can be employed capital gains taxes. to make charitable gifts. Below, we Private foundations are review eight of the most common tax-exempt entities that methods of donating. Changes to fulfill a charitable purpose the tax laws do not affect any of by making grants to January 2018 3 charitable organizations. of the donor’s choice to Family foundations are receive a gift upon their death. typically classified as This may provide a benefit private foundations. They depending on the estate size. provide the directors/ Charitable beneficiary trustees with flexibility and designations may be bestowed control of the foundation, on organizations, naming them its investments, and grant Remember Receipts as beneficiaries of various distributions. A private In order to claim a tax types of accounts, including foundation can potentially deduction for a charitable retirement plans, life insurance exist in perpetuity, helping gift of $250 or more in policies, and other assets that to achieve family legacy. cash or property, the donor may pass by contract. Naming For those who itemize, must obtain a written a charity as a beneficiary acknowledgment from donations to a private allows for the charity to receive the charity and maintain foundation may provide an a copy of the transaction. immediate tax deduction. the gift. The donor’s estate is reduced, which may be In addition, volunteers Bequests are a provision in who itemize are entitled beneficial depending on the a donor’s will providing for a to a tax deduction for estate tax exposure. specific dollar amount, item non-reimbursed volunteer Charitable gift annuities serve expenses of $250 or of property, or share, fraction, more, and must obtain or percentage of the donor’s as an agreement between an acknowledgement estate to be distributed to a a donor and a nonprofit letter from the charitable named charitable beneficiary. organization, where the donor organization containing a The full amount of the contributes assets to a charity, description of the services charitable gift, at death, may which in turn pays a lifetime provided. The lack of proper be deducted from a donor’s income stream to the donor supporting documentation estate. Leaving a bequest to or an individual selected can cause your charitable a charity fulfills the donor’s by the donor. This allows a deduction to be rejected by the Internal Revenue philanthropic wishes by donor to support a charity Service (IRS).3 directing the charity/charities while receiving an income The Philanthropy Impact There is tremendous concern in the nonprofit community that the new tax law will result in a sharp reduction of contributions in 2018. In our opinion, the verdict is still out. The Tax Policy Center (TPC) sees a reduction in charitable giving of $16-24 billion annually due to fewer taxpayers itemizing,4 while The Joint Committee on Taxation (JCT) predicts a decline of at least $13 billion annually.5 JCT anticipates an additional $4 billion decrease in charitable giving due to the increase in the federal estate tax exemption. It’s important to note that since 1976, charitable giving increased in current dollars every year except 1987, 2008, and 2009.6 3 See IRS Publication 1771 Charitable Contributions: Substantiation and Disclosure Requirements and IRS Publication 526 Charitable Contribution for detailed substantiation requirements. 4 http://www.taxpolicycenter.org/taxvox/house-tax-bill-not-very-charitable-nonprofits 5 https://independentsector.org/news-post/new-analysis-house-tax-bill-decrease-giving/ 6 Giving USA Foundation, Giving USA 2017. January 2018 4 stream. Donors who itemize the IRA’s annual minimum may receive an income tax required distribution. This deduction. Those with estate provision allows IRA holders tax exposure may receive a to make charitable gifts deduction. and support causes and IRA charitable rollovers organizations they believe permit individuals aged 70 ½ in without increasing their and older to make qualified taxable income. distributions up to $100,000 annually from the donor’s IRA Tax reform, for many, has to qualified charities. Rollover far-reaching financial implications.