News and Commentary

How Can Charitable-Minded Families Maximize Generosity, Tax-Efficiency Under New Law? by Eric P. Zeitlin

Although few families give to charity solely for a tax break, it is not unreasonable to consider that charitable giving historically has played an important role in tax-efficient wealth and estate planning. Under the new tax laws, however, fewer families qualify to write off their charitable gifts unless they take the time to develop financially sound and efficient philanthropic strategies.

Effective for tax years beginning in 2018, the charitable deduction applies solely to those taxpayers who itemize their deductible expenses, which must exceed the new, higher standard deduction of $12,200 for individuals and $24,400 for married couples filing jointly in 2019. On the other hand, taxpayers who pass this threshold and are able to itemize may receive a larger tax break of 60 percent of adjusted gross income (AGI) for cash gifts to qualifying non-profits. The secret to maintaining tax efficiency for charitable giving can be found in advance planning under the guidance of experienced professionals.

To ensure you receive the full tax benefit of your philanthropic efforts, you may consider bundling together two or more years of charitable donations into a single year. This strategy of bunching several years of charitable gifts into one year can help you exceed the threshold for itemizing in that year and you with the benefit of a deduction for the full value of your donation. The challenge with this strategy is that it requires careful planning and timing of expenses, which may diminish the impact of your gifts.  Instead, you may consider directing your gifts to donor-advised funds (DAF) that support the specific charities that matter most to you.

DAFs are savings accounts controlled by sponsoring organizations, such as financial services firms or community foundations, that accept and invest taxpayers’ irrevocable charitable donations and later distribute those funds via grants to designated charities. The funds themselves are 501(c)(3) charities that act as turnkey solutions to help you manage and maximize both charitable giving and tax efficiency. Moreover, because DAFs invest donations for tax-free growth, a gift to a DAF in one year can result in a larger grant to a recipient charity in future years.

In return for multi-year gifts to DAFs, you may receive an immediate tax deduction for the full amount of the donation in the year of contribution, or as much as 60 percent of AGI for cash gifts or 30 percent of AGI for gifts of appreciated assets, such as securities, real estate or interest in a family business held for more than one year. In comparison, a charitable contributions to a private foundation can yield a deduction of up to 30 percent of AGI for cash gifts and only 20 percent of AGI for appreciated assets. Non-cash gifts to either a DAF or a private charitable foundation can also help you reduce or eliminate exposure to capital gains tax on the appreciation of those assets, which allows you to give much larger gifts to selected charities. In addition, if your DAF contribution surpasses the IRS limit, you may be able to carry the deduction forward five years.

It is important to recognize that the requirements for participating in donor advised funds varies from one sponsor to the next. Even though there is no law governing when or how often a DAF must grant assets to qualifying charities, most have policies in place requiring account owners to grant minimum gifts to nonprofits every few years to ensure that funds are put to work for charitable causes. However, DAF participants should note that while they will receive a tax deduction in the year of their contributions, their donations may not reach the intended charities in the same year. As a result, donors should investigate DAFs before making contributions to ensure that the selected fund squares with the donor’s unique philanthropic goals and philosophies.

Another option for charitable-minded taxpayers over the age of 70½ is make qualified charitable distributions (QCDs) from their traditional IRAs directly to certain non-profit organizations to satisfy their annual IRA required minimum distribution (RMD) obligations. This strategy should apply only if you are financially comfortable and do not need the savings in your IRA to fund your retirement years. Not only can a QCD help you avoid income tax on amounts you transfer to a non-profit entity, but it can also yield a tax deduction, provided you follow specific rules prohibiting them distributions to donor advised funds or private foundations or from SEP IRAs, SIMPLE IRAs or 401(k) plans.

According to mid-year data collected by the IRS, the number of taxpayers claiming charitable deductions in 2018 fell by more than 65 percent from the prior year, with charities receiving approximately 3.4 percent less in estimated dollars than they did in 2017. At the same time, however, charitable donations from foundations increased more than 7 percent, demonstrating that philanthropy goes far deeper than tax benefits. It is a code of ethics and guiding principle that families will continue to follow and pass down from one generation to the next. The trick is to do your homework and seek out professional guidance to improve the impact of your gifts over the long term.

About the Author: Eric P. Zeitlin is managing director of Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services.  For more information, call (954) 712-8888 or email info@provwealth.com.

Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Eric P. Zeitlin is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members FINRA/SIPC.

Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Investments mentioned may not be suitable for all investors, RJFS does not provide tax advice. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relatable to the deductibility of various types of contributions to a donor-advised fund for federal and state tax purposes. To learn more about the potential risks and benefits of donor advised funds, please contact us.


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