Tag Archives: charity

Charitable Giving: Potential Changes Ahead

On February 16, Aronson’s Craig Stevens participated with the Charitable Giving Coalition (CGC) at the 100 years of Giving Fly-In Day to mark 2017 as the 100th anniversary of the charitable tax deduction. The group met with Senate and House representatives from Virginia and West Virginia to discuss tax reform and how the charitable contribution deduction might be affected.

The CGC was formed in 2009 in response to proposals at the time from the Obama Administration and Members of Congress, which would have limited the tax deduction for charitable contributions. Currently, Jason Lee the interim President of the Association of Fundraising Professionals leads the CGC. Furthermore, the Coalition is:

  • A unique, unified voice representing a broad cross-section of nonprofit organizations from across the country.
  • Comprised of more than 175 organizations, including individual nonprofit organizations, large national and international charities, and several associations and umbrella groups that represent the charitable sector.
  • Dedicated to preserving a charitable giving incentive that ensures our nation’s charities receive the funds necessary to fulfill their essential philanthropic missions.

Americans are typically generous, contributing almost $265 billion to charities in 2015 per Giving USA. At the meeting, the group recommended that Congress adopt a universal charitable deduction available to all taxpayers as an “ above the line “ amount before arriving at adjusted gross income such as IRA deductions or even alimony. This would be a shift from current policy where charitable contributions are treated as an itemized deduction that can only be utilized by a taxpayer if they exceed the standard deduction allowed. The House blueprint and President Trump’s tax plan would vastly increase the standard deduction, and reduce the number of taxpayers who itemize from approximately 30% of taxpayers to 5% of taxpayers. The proposed Trump plan also places a hard cap on itemized deductions at $100,000 for individuals and $200,000 for married filing joint. The American Enterprise Institute estimated President Trump’s plan could eliminate more than $17 billion in annual giving. If the plan succeeds, the nonprofits that support every facet of life in our communities such as education, research, health services, housing and shelter, job training, arts, culture, environmental protection, historic conservation and preservation, civil rights, and more will be negatively impacted.

For more information, please visit http://protectgiving.org/. Stay tuned for updates on tax reform under the new administration.

The Intricacies of Charitable Contributions

contributions

This article was co-authored by Richard Lee.

Generally, charitable contributions of “ordinary-income” property also known as tangible property held less than one year are limited to the cost of the property.

In certain instances, there are exceptions to this “cost” rule, allowing for a higher or enhanced charitable contribution where the value of the property exceeds its cost.

For example, a contribution of inventory by a regular corporation that is not an S corporation, to a public charity or private operating foundation can result in an enhanced charitable deduction. The deduction is equal to the cost of the property plus one-half of the property’s unrealized appreciation, but with such deductions being limited to not more than twice the cost of the property.

To qualify, the donated property:

  • Must be used directly by the charity in connection with its exempt function activities, to care for the ill, the needy, or infants.
  • Cannot be sold by the donee organization in exchange for money, other property, or services.
  • Must be acknowledged, in writing, as having been received from the donor corporation, subject to the foregoing limitations; and,
  • Must have fully met any applicable requirements under the Federal Food, Drug and Cosmetic Act, and regulations promulgated thereunder, as of the date of the gift and during the prior 180 days.

In the case of a donation of food used in a trade or business, both corporate including S corporations and non-corporate taxpayers are entitled to the foregoing enhanced charitable deduction.

These general rules have various intricacies, based on specific factual circumstances. For more information or questions, please contact Aronson’s Nonprofit and Association Industry Services Group at 301.231.6200.

Americans are Becoming Less Charitable

Charitable donations have decreased since the 2008 economic recession and its subsequent recovery. Interestingly, during periods of economic downturn lower and middle class Americans give substantially larger proportionate amounts of their income to charity than those earning greater than $200,000 per year. Economists at Texas A&M University analyzed the amount of charitable giving itemized on Americans’ tax returns from 2006 – 2012 and indicated that Americans who earned less than $100,000 in annual income donated about 4.5% more money than average during the 2008 economic recession. Comparatively, Americans who earned greater than $200,000 in annual income donated about 4.6% less money than average during the same period. Based on this research, it is appears that those who benefit from charitable contributions are more likely to donate. However, donations from wealthy Americans still encompass the majority of the total dollars donated as charitable contributions.

In addition to this economic research, fewer Americans believe that their volunteerism is effective in their communities. Previously, volunteers believed that it was their responsibility to improve their communities; an increasing number of volunteers have shifted to the mindset that community improvement is the joint responsibility of themselves and their families, governmental groups, nonprofits, faith-based organizations, and educational institutions. This may represent a growing fatigue among Americans regarding volunteerism. Between 2010 and 2014, the percentage of people who planned to volunteer dropped from 57% to 41%.

Although the recession of 2008 has since recovered, lingering uncertainty may reduce the likelihood of charitable donations. A similar phenomenon occurred following the Great Depression. However, charitable giving is not solely dependent upon income levels. Rather, charitable motivations may stem from social pressure, sympathy, or guilt. Similarly, charitable giving has proven to stimulate the same regions of the brain as food, cute babies, and romantic partners. To maintain a stable, steady donation stream, charities must be able to prove to the American public that their work is highly beneficial to their local respective communities and show the personal, economic, and social benefits that their respective work encompasses.

Find out what others are saying about this trend here, here, and here.

Donor-Advised Funds Continue to be Controversial

Contributions to donor-advised funds have exploded in the last 20 years. In fact, the Fidelity Charitable Gift Fund raised more in donations in 2015, than any other charity in the United States according to various news reports. Furthermore, 4 of the top 10 largest charitable recipients were donor-advised funds run by major financial groups like Fidelity, Schwab, and Vanguard.

What is a Donor-Advised Fund (DAF)?

It is a fund run by a valid 501(c)(3) charity that accepts donor contributions and manages them for future distribution to an operating charity. The donor receives an immediate tax deduction at 50% of their AGI level for contributing to the fund since it’s considered a public charity. However, the donations are held by the fund and later invested. At a subsequent date, the donor makes “recommendations” to the fund for distribution to an operating charity like a University, soup kitchen or nonprofit hospital.

These funds can serve a very useful purpose for donors. For example, suppose a charitably-oriented donor had an excellent year financially and wanted to donate $100,000 before year-end to charity. Without time to research and decide exactly which charities to fund before year-end, they still want to avail themselves of the available charitable contribution deduction. In this scenario, they could contribute the $100,000 to a commercial DAF like Fidelity Charitable or a community foundation. By doing so, they would still receive the tax deduction that year for donating to a public charity, and have time to research and decide where they wanted the donation to ultimately go. A DAF can be an alternative to a private foundation because of lower administrative costs and potentially larger tax deductions due to lower AGI limits for private foundations. Also, DAFs can potentially have a greater ability to donate appreciated long-term capital gain property other than publicly-traded securities. Some donors also believe that contributing through a DAF instead of directly to an organization insulates them from relentless appeals for repeat donations.

The funds are not without controversy. There’s evidence that donors are not paying out charitable distributions quickly and instead are accumulating money inside the charitable vehicle. Unlike private foundations, there is no specific distribution requirement for a donor-advised fund. DAF providers like Fidelity or Schwab also benefit from these accumulations by earning investment management fees on the invested assets. Some commentators believe these vehicles are replacing much needed dollars that go directly to the worthy causes and have a negative impact on the overall state of philanthropy.

DAFs are a great tool for donors to achieve their charitable objectives. We encourage those who have established them to make reasonable payouts each year to help the recipient organizations providing the charitable service.

 

The CHARITY Act 2016

charity keyThis blog entry discusses the Charities Helping Americans Regularly Throughout the Year (CHARITY) Act. The charitable contribution deduction is often singled out for some sort of limitation in a world where raising tax revenue will probably become more and more important. Whether this is proposed as a cap on itemized deductions at a 28% benefit rate or a limit on itemized deductions in general or some other method, there is some potential “attack” on the sanctity of the charitable contribution deduction. Interestingly enough, in this discussion two senators John Thune (R-S.D.) and Ron Wyden (D-Ore.) have proposed the Charity Act to potentially make it easier for Americans to make charitable contributions. Thune and Wyden are both members of the Senate Finance Committee which has jurisdiction over tax and revenue measures.

The CHARITY Act (S. 2750) would:

  • Make donor-advised funds an eligible charity for purposes of the IRA rollover law that permits an IRA owner at least 70-and-a-half-years old to exclude from their gross income up to $100,000 per year in distributions made directly from the IRA to certain public charities.
  • Simplify how foundations are required to calculate the federal excise tax imposed on investment income.
  • Authorize the Treasury Department to adopt regulations that align the simplified standard mileage tax deduction rate for personal vehicle use for volunteer charitable services with that for medical and moving purposes.
  • Promote transparency by requiring nonprofits to file their paperwork electronically.
  • Encourage philanthropic enterprises wishing to donate profits to charity by creating a limited exception to the excess business holding tax rules.
  • Express the sense of the Senate that the promotion of charitable giving be one of the goals of comprehensive tax reform.

See  http://www.thune.senate.gov/public/_cache/files/3dc80d36-6ccd-4d87-9dc8-f4fa33b22ed5/F5C7105867D819A1DDADB7C755E15C9A.charity-act-summary.pdf  for a summary of the bill. Because of time taken up with political conventions and other matters, it may be difficult to get any action on the bill in 2016 but let’s stay hopeful for the future.

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