If you are a high-income earner and make large charitable gifts every year (or anticipate large gifts in the future) you might want to consider accelerating your charitable contributions to take advantage of the current income tax benefit. A charitable gift in 2016 may provide substantially more benefit than you would receive in the future.
Following the Presidential election, tax reform is in the spotlight and could occur in 2017. Both President-elect Trump and the Republican Congress are very interested in tax reform and may have the legislative ability to achieve it, beginning next year.
The plans under discussion could include both lowering income tax rates and limiting itemized deductions. Each of these changes would negatively impact the value of charitable deductions. A rate cut will lower the value of the tax deduction and a cap on itemized deductions may limit or eliminate the charitable deduction for some taxpayers.
Both Trump and House Republicans have proposed lowering the top individual tax rate from 39.6% to 33%. If this change is enacted, for example, a charitable gift of $10,000 would save $3,960 in taxes under existing law, yet only $3,300 after a change. So, a deduction in 2016 could be worth 20% more than a deduction in 2017 if the law is changed in this fashion.
Given these potential changes to the tax code, this year may be an opportune time to “front load” your annual gifts by making a multi-year gift to maximize your deduction at today’s higher tax rates. This charitable “front-loading” can be done quite effectively by using a donor advised fund (or DAF), which is a special brokerage account that functions like a personal charitable foundation. Once funded, your DAF can be used to give to the charities of your choosing anytime in the future. If you would like to learn more about donor advised funds, click this link.
If you would like to discuss your personal charitable giving and tax planning strategies, we would be happy to schedule a meeting or a conference call at your convenience.