By Francine Vorhees, Partner, Moss Adams LLP
Helping others has numerous rewards. Reaping tax benefits is a nice bonus.
While we cannot yet know the impact of the new Tax Cuts and Jobs Act on overall charitable giving, a number of studies—including the Foundation’s 2018 Big Day of Giving Report to the Community—have found that donors give to nonprofits for altruistic reasons, rather than because it lowers their tax burdens. So, while tax benefits probably aren’t what drive you to support the causes that matter to you, if you have itemized your tax return rather than take the standard deduction in the past, the deduction for charitable contributions has typically shaved money off your tax bill.
While the deduction for charitable donations is unchanged under the new tax law, you’ll still need to itemize your return to claim it. Yet, with the nearly doubled standard deduction and the limitation on state income taxes and property taxes, you might find reduced incentive to itemize your returns going forward.
I anticipate that many of my clients, who have always itemized their returns in the past, will more frequently take the standard deduction in coming years. However, as I have told them, with planning, you can still maximize your tax benefits when giving to the causes you love.
How and when to give should be based on your unique circumstances, so in helping my clients with charitable planning, I start with understanding their goals and desires.
For example, when my clients indicate they want to give to multiple nonprofits, a Donor Advised Fund (DAF) at the Foundation is often a well-suited option. When you open a DAF, you can make a single large donation to the DAF, and then grant those funds to your favorite causes throughout the year. If the gift—or gifts—you make to your DAF reaches the threshold to make itemizing your tax return an attractive option, you can take the charitable deduction for that tax year and retain flexibility in your giving into the future. Your gift stays with the DAF until you instruct the Foundation to disburse the funds to the nonprofits of your choice.
Many enjoy the ability to give flexibly to multiple organizations through DAFs, but another option to maximize tax benefits when giving to nonprofits is to double your donation to the nonprofits you support regularly, potentially giving directly to them every other year in order to reach the threshold to itemize in those years.
Tax-advantageous giving often comes in forms beyond cash gifts. For example, by giving through highly appreciated stock or real estate that you have owned for more than one year, you may receive a double tax savings when donating the asset to charity, as you do not pay capital gains tax on the appreciation in the property. Plus, you will receive a charitable deduction for the fair market value of the asset given.
I also encourage my clients to consider tax-advantageous opportunities available through Charitable Remainder Trusts, and, if they’re over 70 ½, making charitable contributions from their IRAs’ required minimum distributions.
As with any tax strategy, it’s a good idea to meet with a tax or financial planning professional experienced in charitable giving to go over your personal financial situation. It’s important that you understand the options available to you and that your choices fit your goals and circumstances.
Of course, the people who live in the Sacramento region are very generous with their time, talents, and treasures, and their generous spirits—rather than the tax advantages—are what inspire them to give. As I do with my clients, I encourage you to find ways to give that fulfill your goals, bring you joy, and support the many wonderful organizations that are helping to make a better tomorrow in the Sacramento region.
As a partner at Moss Adams, Francine Vorhees, CPA, combines practical business experience with technical knowledge to advise her clients on tax compliance and planning, business consulting, and estate issues; currently, she leads the trust and estate practice for the firm’s California Central Valley office and co-leads the firm’s estate planning practice. She is a member of the Foundation’s Philanthropic Advisors’ Forum of Greater Sacramento, and was awarded the Don Poole Award in 2017 for her contributions to local philanthropy.