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:
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.
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:
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.
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.
This 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:
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.