Reasons to Increase Charitable Donations Before Year-End

by Chris Cahill, J.D., CFP®, CAP®, Principal, Family Office Services

In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

Given the election results on November 8th, it would appear that the certainty surrounding taxes has become substantially less clear. President-elect Trump is in the process of filling out his cabinet and preparing to take the oath of office in January. When he does, he will likely begin following through on his campaign pledges to reduce, simplify and, in some cases, eliminate taxes. Depending on your perspective, that either sounds great or terrible to you. Dispensing with the political discussion, what is clear to me is that we are entering into a phase of tremendous uncertainty with regard to taxes and tax reform.

Both President-elect Trump and the Republicans in Congress have proposed sweeping changes to the tax code. While we have no way of knowing what these changes will look like when they are actually enacted, the following is a summary of some items where President-elect Trump’s plan places particular emphasis:

  • Reducing the number of brackets from 7 to 3, with the highest bracket topping out at 33% (House Plan also adopts 3 brackets)
  • The standard deduction will be substantially increased (up from $6,300 to $15,000 for single filers, and up to $30,000 for married couples who file together);
  • Itemized deductions – including mortgage interest, medical expenses and charitable contributions likely capped ($100,000/$200,000 for single/married filing jointly).

The Trump proposal also calls for the elimination of the Alternative Minimum Tax (AMT), the Net Investment Income Tax (NIIT) and the repeal of Estate and Gift Taxes. (The Trump Plan seems to impose a Capital Gains Tax at death on estates in excess of $10 Million.) The Trump proposal would also reduce Corporate Tax Rates from 20% to 15%.

Many commentators agree that changes to the income tax are likely going to be easier to enact than an outright repeal of the Estate and Gift Taxes.

The impact of the proposed Trump changes could be significant. By raising the standard deduction, you effectively reduce the number of people who need to itemize their deductions. This, in turn, could impact the importance of the mortgage interest deduction for homeowners. If your mortgage interest is less than the standard deduction (all other things remaining constant) you would not need to itemize it. Economists have concern that this change could have a negative impact on housing prices.

By placing a cap on itemized deductions, the Trump proposal could potentially reduce the amount of overall charitable giving. Under our current system, a donor may deduct up to 50% of their adjusted gross income (AGI) for cash gifts to a public charity and up to 30% of their AGI for gifts of securities to a public charity. Under the Trump proposal, you would lose the tax benefit of charitable gifts in excess of $100,000 for a single filer or $200,000 for a married couple filing jointly, no matter how large your AGI is. Even if you don’t hit the cap for the itemized deductions, the tax benefit of making charitable deduction would be reduced due to the proposed reduction in rates. (It is important to note that the Ryan Plan appears to preserve the current charitable-giving tax breaks.)

The impact of the proposed changes to the charitable deductions is unclear. Some commentators fear a dramatic reduction in charitable giving under the proposals outlined above. Conversely, the 2016 U.S. Trust® Study of High Net Worth Philanthropy Report states that,

“[i]n 2015, wealthy households cited the following among the primary reasons they give: believing in the mission of the organization (54 percent); believing that their gift can make a difference (44 percent); experiencing personal satisfaction, enjoyment or fulfillment (39 percent); supporting the same causes annually (36 percent); giving back to the community (27 percent); and adhering to religious beliefs (23 percent). Just 18 percent of wealthy donors said they gave largely because of tax benefits in 2015.” (Emphasis added.) See full U.S. Trust study here.

So, what does all of this mean for you as a taxpayer? Well, if you traditionally itemize your deductions you may want to consider increasing your charitable giving this year. Also, if you are contemplating making significant charitable gifts in 2017 and beyond or have made a multi-year pledge, you may very well want to consider accelerating those gifts into 2016; thereby potentially gaining the benefit of the more favorable current tax deductions. Pre-funding or “front-loading” a donor-advised fund may also make sense.

In addition, if you have the ability to control the timing of your income, you certainly may want to consider deferring as much as you can into next year when the rates will presumably be lower.

Again, while none of the items addressed above are a certainty, what we do know is that tax changes are likely coming.

If you have any questions about how the proposed changes may affect you and your planning, please reach out to Chris Cahill at 978-318-9504 or via email at: to schedule an initial conversation.

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