It's Time for Tax Wise Giving

Congress and the administration have been struggling to pass benchmark legislation. The next major legislation may be changes to the tax code. The administration has floated its proposal. Some congressmen have floated their proposals. News reports predict that Congress – seeking resolution on a major piece of legislation – will coalesce enough to get a tax bill passed. At this stage, it is important to note that the discussions today center on the starting point for what could be months of negotiations as lawmakers try to change the tax code.

But that does not change the impetus to be tax wise in your charitable giving. And while policy changes have yet to be confirmed, there are some that are largely predicted to be passed. And there are others that are just plain smart and are available to you to be tax smart with your charitable giving.

If you believe, as I do, that Congress will pass some legislation affecting the tax code (I hesitate to predict whether it will be an overhaul, reform, or just some tweaking), then understanding the impact of what will likely be passed could benefit you this year. Conventional wisdom portends that tax rates will likely be revised and lowered for many taxpayers. Most believe there will be fewer tax rate categories and lower tax rates. If that occurs, then the deduction for charitable contributions may be more valuable this year (2017) than it will be under the new code.

For example, lowering the top tax rate from 40 percent to 35 percent effectively reduces the value of a charitable deduction by 12.5 percent. Tax planning articles by CPAs and financial planners recommend accelerating your donations before Dec. 31, 2017 to get the current (and likely higher) tax benefit. You can do this by paying past and current Federation pledges, or pre-pay pledges you plan to make for the current or subsequent years (we hold your payments on your account). As long as the payment is made by Dec. 31, 2017, the contributions are considered 2017 charitable contributions.

Another recommendation is to open a Donor Advised Fund with your contribution. This allows you to make a charitable contribution, receive an immediate tax break and then recommend grants from your named fund to your favorite charities over time.

There are other ways to be tax wise in your charitable giving.

If you are over 70½ years old and have money in an IRA, it is mandated that you withdraw a required minimum distribution (RMD) from your account each year. If you are also considering gifts to charity this year, then a qualified charitable distribution (QCD) may be to your advantage.

This “direct charitable rollover” allows you to give up to $100,000 directly from the IRA to the charity, such as the Jewish Federation. The advantage is that the distribution satisfies the RMD and is not added to your adjusted gross income, which may help in keeping your Medicare premiums down, among other benefits.

Additionally, many folks have life insurance policies that may no longer serve their original purpose. Perhaps these were purchased years ago to replace the breadwinner’s income or to pay an estate tax that is no longer an issue. Consider donating this asset, which may result in a substantial legacy gift. Depending on the type of policy and whether you will continue to fund the premium (through tax deductible gifts to the Federation), you could enjoy current income tax benefits (at the anticipated higher value of the charitable deduction), and the Federation may even be able to access the current policy values as well.

Another tax-wise giving mode is to donate (transfer ownership of) non-cash assets such as stock or mutual fund shares to the Federation. Assuming the investment has grown in value, donating the investment directly to the charity will enable your avoiding capital gains tax on the appreciation, and you still get to take the charitable deduction based on the fair market value of the investments on the day you make the donation. You get the charitable deduction and avoid capital gains tax and the Federation benefits from the full market value of the donated assets. It is a win-win.

For more information, call the Federation (610-821-5500) and speak with me, Jim Mueth or Jeri Zimmerman.



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