Tax Reform. Booming Market. Why Now Is a Great Time to Give.

Written by Bill Sternberg

Now is a great time to explore tax-smart charitable giving. Congress is closer than ever to making substantial changes to the tax code, and some of those changes could make 2017 an unusually good time to give. Combine that with the continued surge in the stock market, and the next couple of months may present a unique opportunity for you to maximize your charitable investments – and your tax savings.

Tax reform may increase the cost of giving.

The tax debate is complicated and rapidly evolving. However, one of the basic ideas under discussion is a reduction in the marginal tax rate for many wealthy Americans. A lower tax rate would increase the after-tax cost of charitable donations. Consider this example:

Nancy Jones has taxable income of $500,000 and a tax rate of 39.5 percent. She gives $10,000 to a Donor Advised Fund at a community foundation and takes a charitable deduction for the gift. As a result, her tax bill is reduced by $3,960, so the after-tax cost of her donation is $6,040. However, if Nancy’s tax rate drops to 35 percent, the federal subsidy for her gift will fall to $3,500, so her after-tax cost will increase to $6,500.

There is a real possibility that, for many Americans, the cost of giving will go up in 2018. If you give to charity every year or plan to make a major gift in the near future, you may want to consider accelerating your plans in order to take full advantage of the current charitable deduction limits.

High stock values mean it’s a great time to give appreciated assets.

The S&P 500 is up 23 percent over the last 12 months and 27 percent over the last three years. That means now is a great time to talk with your financial advisor about the benefits of donating appreciated securities. There are a couple of reasons that giving stock instead of cash could help you maximize your charitable investments. First, giving appreciated stock that’s been held for more than one year allows you to take a charitable income tax deduction for the full fair market value on the day it’s donated. You can also avoid the capital-gains tax that you would owe if you sold the stock and donated the proceeds to charity.

If you would reap tax savings from a year-end charitable gift but haven’t had time to craft a thoughtful giving plan, partnering with a community foundation can be a great solution. By opening a Donor Advised Fund, you can receive an immediate tax benefit, while retaining the flexibility to do your due diligence and support one or more nonprofits over several years, the rest of your life, or even multiple generations.

If you’d like to learn more, contact a Philanthropic Advisor at The Minneapolis Foundation at 612-672-3878, and we’d be happy to discuss how we can best partner with you to support your goals.

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