Now is a great time to encourage your clients to explore tax-smart charitable giving. As the tax reform debate heats up, more and more clients will want your guidance navigating the twists and turns of this complex political process – and some of the legislative changes under discussion could make 2017 an unusually good time for them to give. Combine that with the continued surge in the stock market, and the next couple of months present a unique opportunity to help your clients maximize their charitable investments – and their tax savings.
Tax reform may increase the cost of giving.
The tax debate is complicated and rapidly evolving, and it’s impossible to predict what Congress will do. 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 of your clients, the cost of giving will go up in 2018. Clients who give to charity every year, or who plan to make a major gift in the near future, may want to accelerate their 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 clients about the benefits of donating appreciated securities. There are a couple of reasons that giving stock instead of cash can help your clients can maximize their charitable investments. First, giving appreciated stock that’s been held for more than one year will allow them to take a charitable income tax deduction for the full fair market value on the day it’s donated. They can also avoid the capital-gains tax that they would owe if they sold the stock and donated the proceeds to charity.
For clients who 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, they can receive an immediate tax benefit, while retaining the flexibility to do their due diligence and support one or more nonprofits over several years, the rest of their lives, or even multiple generations.
If you have clients who might benefit from establishing a Donor Advised Fund, contact a Philanthropic Advisor at The Minneapolis Foundation at 612-672-3878 to discuss how we can work with you to support their goals.
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