You are here

Impact of tax reform on charitable giving and how to maximize your deduction

While not a total game-changer, the 2018 tax season had a different twist than those of the recent past due to the new tax legislation passed late in 2017.  Undoubtedly, many taxpayers have already asked their accountants about the impact of the Tax Cuts and Jobs Act for future tax planning purposes, and this will continue to be a focus for next tax season. Heading into this year’s tax season, statistics showed that roughly 30% of taxpayers itemized deductions.  It is predicted that this number will drop to 10% in the future because taxpayers will no longer receive the benefit of itemizing due to the higher standard deduction.  At the Lehigh Valley Community Foundation (LVCF), we believe that many donors will continue to support their favorite charities because their hearts are prompting them to give, but we also know that many donors want to find ways to continue to lower their tax bill through charitable giving.  The Community Foundation helps philanthropically-minded people with tax planning strategies for charitable giving in a number of ways.

Donation bunching, lumping or stacking

Donation bunching, lumping or stacking seem to have become common terms since late 2017. This is the concept of making a significant donation to a donor-advised fund now to exceed the newly increased standard deduction and then deferring the granting of dollars over a period of time.  It is a win-win for both the donor and the charities that will ultimately receive the grants.  Establishing a donor-advised fund at LVCF is very simple.  There are no set-up fees and no limit to the number of grants that can be made from a fund.   Also, the flexibility of a donor-advised fund allows grants to be made to charities that are small or large or that vary in type, such as food banks, hospitals, colleges, churches or synagogues, animal shelters or sports organizations, to name a few.  

Gifts of appreciated securities

Gifts of appreciated securities continue to be beneficial for donors to help boost contributions for purposes of itemizing deductions and to avoid tax on capital gains if the donor sells the highly appreciated securities.  With markets remaining at all-time record levels, most donors likely have some highly appreciated securities in their portfolios.   A gift of appreciated securities can be made to any existing fund of the Foundation or can be used to establish a new fund.  A gift of appreciated securities to a donor-advised fund can also provide the administrative ease of turning one gift to LVCF into several grants to many different charities.  This is accomplished without the need to do any calculations to determine the number of shares of stock to be donated directly to several organizations or to obtain instructions and complete various forms to electronically deliver securities.

IRA qualified charitable distribution (QCD)

The IRA qualified charitable distribution (QCD) provides a way for donors 70 ½ and older to receive a tax benefit for their generosity.  It is beneficial regardless of the ability to itemize or not because the QCD will not be included in adjusted gross income and is therefore not subject to tax.  A donor can make a QCD of up to $100,000 annually to a charity, and as an added benefit, the QCD satisfies the donor’s required minimum distribution.  The QCD can be made to any type of fund of the Foundation except for a donor-advised fund.  While the law does not allow QCDs to donor-advised funds, many donors have found it beneficial to use the QCD to create a designated fund.  The main difference between a designated fund and a donor-advised fund is that grantmaking from a designated fund is determined at the time the fund is established and does not provide the flexibility of changing the charities to receive grants from the fund.  The set grantmaking is not a challenge for many donors because they already have an established plan for supporting their favorite charities which then becomes the plan for grantmaking from the designated fund.

Ask Trisha | Maximize your charitable giving

Trisha R. Higgins, CPA

Vice President & CFO
Lehigh Valley Community Foundation
840. W. Hamilton Street, Suite 310
Allentown, PA 18101
610 351-5353, ext. 15