Impact Of Tax Law On Charitable Giving

Transcription

1 Impact Of Tax Law On Charitable Giving Serving Those Who Serve Society Atlanta Chicago Memphis Nashville San Francisco Washington Changes Impacting Charities Original Proposals Would Have Been Very Bad Actual Changes Were Marginal Changes Are NOT Fundamental Most Proposals Bad for Charities Failed Additional Charitable Incentives Added 2 1

2 Specific Tax Provisions % 15.0% Percentage Change in Giving 1955 Through 2016 Percentage Change in Giving by Individuals From in Current Dollars! 10.0% 5.0% 0.0% Tax Act 5.0% 10.0% Source: Giving USA

3 Most Early, Harmful Provisions Eliminated in Bill Early Proposals Would Have Reduced Itemizers From 30% to 5% New Law: Little Impact on Gifts Smaller, Low Income Donors Little Impact On Most High End Donors 5 People Itemizing Biggest Impact: Reduction In the Number of Itemizers 80% of Charitable Gifts From Itemizers 80% From Those With $100K+ Income Old Law: 30% Itemized New Law: 20%? Estimates Vary 6 3

4 What is Typically Itemized? Big 3 Deductions: Mortgage Interest State & Local Taxes Charitable Gifts Charitable Gifts Are ONLY Area Not Reduced/Harmed Deductibility Actually Expanded 7 Mortgage Deductions Reduced Old Law: Deduct Interest on $1,000,000 Mortgages Deduct Home Equity Loan Interest Deduct Second Homes New Law Deduct Interest on New $750,000 Loans No Home Equity, No Second Mortgages 8 4

5 State & Local Tax Deductions Reduced Old Law: Deduct State Income or Sales Taxes Deduction State & Local Property Taxes No Limit New Law Deduct State & Local Taxes o $10,000 Max 9 Other Provisions Standard Deduction Increased $12,000 Single, $24,000 Couple Personal Exemptions Eliminated 529 Plans Expanded Beyond College Helpful to Independent Schools DAF $$ Can Now Pay Gift Pledges New IRS Revenue Ruling o Not Tax Law Change 10 5

6 Estate Tax Change Federal Estate/Gift Tax Exemption Rose From $5.5 Million to $11 Million Couples From $11 Million to $22 Million US Trust: Wealthy Would Give More to Charites If Estate Tax Eliminated 2010 Exemption Raised to $5MM Bequests: 30% Higher in 2015 Than

7 Estate and Gift Taxes and Giving 2.7 Million Die Annually 6-9% Make Charitable Bequests 2,500 Taxable Estates Under New Law 99.9% of Estates Non-taxable 13 When Is It Too Late To Influence Bequests? What Will Be The Tax Law Impact on Bequests? 7

8 Medicare 3.8% Investment Tax Medicare 3.8% Tax Added In Addition To Capital Gains Tax Imposed on Investment Income Only At $200,000 Single, $250,000 Married Capital Gains Tax Effectively 23.8% 20% Capital Gains + 3.8% Medicare Tax For Wealthier Investors Stock Gifts Avoids This Tax 15 Who Makes, Itemizes & Deducts Charitable Gifts? 80% of Gifts From Itemizers Most From Incomes of $200, % of Itemizers $100,000+ Income 20% From Those Under $100,000/yr. Very High % to Religion, Churches Not Significantly Impacted By Deduction 16 8

9 Impact on Most Households w/ Incomes Of $100,000+ Most Will Continue to Itemize Because State/local Tax Deduction Partially Restored Up to $10,000 Max Most Will Still Deduct Charitable Gifts 17 Charitable Gift Deductions Old Law: Cash Gifts Up to 50% of Adjusted Gross Income (AGI) New Law: Cash Gifts UP to 60% of AGI Many Can t Deduct All They Give o Carry Forward Charitable Deductions Many Deductions Never Used Only For Those Who Itemize 18 9

10 Who Cares About the 60% Limitation? Those Who Give More Than 50% of AGI & Itemize Charitable Deductions Who Has Low AGI, But High Income? What Types of Assets? Why? 19 Age Of Taxpayers Who Carry Forward Charitable Deductions Under 35 45,949 $611,632 2% 35 under 45 49,638 $728,444 2% 45 under 55 69,130 $1,721,389 5% 55 under ,528 $5,059,499 15% 65 and over 182,992 $25,902,662 76% All returns 457,237 $34,023, % Source: Internal Revenue Service

11 Other Charitable Gift Issues No Change Gifts Appreciated Stock Real Estate Gifts Deduct Up to 30% of AGI No Change In Ability To Make Charitable IRA Gifts $100,000 Per Person Starting at Age 70½ This Becoming Much More Important 21 Other Charitable Gift Issues Charitable Deduction Virtually Unscathed! Key Provisions Still Intact and Still Important Expanded For Some Most Apt to Impact Seniors Positively Particularly Higher End Donors Impact on Upper-middle, Higher Income? Minimal Expected 22 11

12 Pease Amendment Eliminated Pease Reduced All Deductions by 3% If AGI $261K Individuals, $314K Couples Could Eliminate Up To 80% of Deductions Largely Negates Lower Top Rates In Terms of Actual Economic Effect 2.6% Drop in Top Rate o Vs 3% Loss of Deductions Under Old Law 37% New Top Rate vs 39.6% Old Top Rate 23 12

13 Who Is At Most Risk? 20% of Itemizers With Incomes of Under $100,000 Primarily Those With $50-$100 K Income Estimated 16% of Gift Donors Will See a Partial/complete Loss of Charitable Tax Deduction Expect Actual Drop to be Much Less 25 Most At Risk By State 10 Highest Tax States According to Investment News 4/10/18 CA, HI, IL, MN NY, NJ CT, RI, VT, ME Most Apt To Be Harmed By Tax Law Highest Total Taxes Highest Proportion of Itemizers 26 13

14 Charitable Gift Opportunities Stress Gifts From IRAs Will Become Much More Important From Those Age New: Deduct Gifts Up to 60% of AGI Particularly Good For Those With Large Amounts of Tax Exempt Income Gifts of Appreciated Property Avoid Capital Gains Taxes Entirely 27 What to Do? Understand What New Law Actually Does Sky is Falling Press Coverage Misleading Explain To Donors Risk: Self-fulfilling Prophecy Encourage Stock, Non-cash Gifts 8,000 Boomers Turning 70 Every Day Stress Charitable IRAs Avoiding Income =/ or Better Than Getting Income And Charitable Deduction 28 14

15 What to Do? Share Information With Donors Your Guide To Effective Giving After Tax Reform 29 From: XXXXXXXXXXXXXXXXXX To: Robert Sharpe Subject: RE: Yesterday Robert, I wanted to you with a true story. This morning I met with a $5,000/year donor and asked him to increase to $10,000 and become a XXXX Associate. He said that he would do that online. So I said, Do you have stock that is worth more than you paid for it? If you do, you might consider donating $10,000 worth of that, because we don t pay capital gains. You could even repurchase $10,000 at get a higher basis to decrease future capital gains. He said: I never would have thought about that. Thank you for thinking about me. He thanked me for this again 15 minutes when he left my office. I plan to tell this story to our major gift team at our weekly meeting Monday morning and ask how they have put your ideas into action. Thanks again for yesterday. XXXXXXX 15

16 What To Do Encourage Gifts of Stocks, Bonds, Mutual Funds 31 What to Do? Encourage Charitable Lead Trusts Provide For Grandchildren/Others in Future Primarily for High End, Wealthy Donors Avoid/ or Limit Estate, Gift, & Generation- Skipping Taxes Avoid Receiving Taxable Income Similar to Charitable IRA Approach Support Charities For Extended Timeframe 32 16

17 Why Does A Charitable Lead Trust Work? What To Do Stress To Donors Charitable Gifts Only Primary Deduction Not Limited By New Tax Law Law Actually Expanded Charitable Benefits o For Those Making Larger & Deferred Gifts 34 17

18 What To Do Advise Minority of Donors Who WILL Be Impacted on Possible Approaches Donor Advised Funds Bunching Gifts Alternate Year Giving, etc. Charitable IRA Gifts if Age 70½ or Older 35 Donor Advised Funds (DAF) Significant Growth in DAFs in Late 2017 More Apt to Occur in Coming Years Donors Will Still Drive These Gifts o Usually Can t Solicit DAFs Directly Thanking/Receipting DAF Gifts Don t Forget To Thank Donors DAFs Don t Care About Thanks, Donors Do Acknowledge Donor & DAF In Same Letter 36 18

19 Larger Environment Trade War & Stock Market Uncertainty Economic Uncertainty Slows Decisions Slows Gift Decision-making Market Volatility Bigger Impact On Giving Than Tax Law Many Still Have Highly Appreciated Assets! 37 Larger Environment Even After Market Drop, Stocks Still Much Higher S&P 500 Down 5% From January 2018 S&P 500 Up 16% From January 2017 S&P 500 Up 38% From January 2016 S&P 500 Up 31% From January 2015 S&P 500 Up 45% From January

20 Summary Tax Law Not Expected To Reduce Charitable Giving Significantly Key Issue Is Itemizing $50-$100K Income Donors Most At Risk Risk Is Of a Self-fulfilling Prophecy Explain That Charitable Deductions Were Not Reduced 39 Additional Information Sharpe Audio of Tax Reform Webinar Recording Available at:

21 Download Available: 41 John W. Jensen, CFP Senior VP & Consultant 5509 N. 10th Street Arlington, VA Office Cell Serving Those Who Serve Society Atlanta Chicago Memphis Nashville San Francisco Washington