Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

The Tax Cuts and Jobs Act of 2017 took effect on January 1, 2018. Under this new law, gifts to charity remain deductible, although it is estimated that the higher standard deduction—now $12,000—will mean that fewer than 5% of taxpayers will itemize. This could mean a drop in smaller gifts to charity. However, most of the structures for making significant gifts remain and the deduction limitations have been raised. While a taxpayer could deduct up to 50% of Adjusted Gross Income (AGI) for cash gifts under the old law, he or she can now deduct up to 60% of AGI for cash gifts and 30% for appreciated property with a five-year carry forward of any unused amount.

For most donors, giving to charity is not about the deduction. They give because they support the mission of the organization. Tax savings from the deduction do, however, enable some donors to give more than they might otherwise. And there are still some tax benefits to be received from gifts to charity.

Qualified Charitable Distributions
Donors aged 70 ½ must take a required minimum distribution (RMD) from their IRA each year. This can often mean they are getting income they do not need which will be subject to taxation. Furthermore, the income from the RMD can push an individual into a higher tax bracket. A donor can avoid this tax by donating his or her RMD to charity up to $100,000. While the donor does not get a charitable deduction, they avoid the recognition of taxable income on the RMD.

Charitable Remainder Trusts (CRT) and Charitable Gift Annuities (CGA)
The CRT and the CGA are strategies for doing well while doing good. Each allows a donor to take a significant tax deduction while receiving annual income from the trust or annuity. With a CRT the donor establishes a trust by committing a sum of money to charity. The donor takes back an income interest generally for his or her life and the life of a spouse. The value of the gift less the value of the income interest is available as a deduction in the year the trust is established. At the end of the term any money remaining in the trust reverts to a predetermined charity or charities. The CGA is an annuity contract made with a charity. Like the CRT, the CGA pays the donor a fixed income for life. The remainder goes to the charity. The donor can take a charitable deduction in the year the CGA is set up just like the CRT deduction.

The Donor Advised Fund
Donors who wish to make a significant commitment to charity but either want to spread the gift to a number of charities or are not sure what charities he or she wishes to support, may find the Donor Advised Fund (DAF) to be a convenient solution. A DAF is a fund which the donor establishes by making a significant gift to a special charitable organization like a community foundation. The total amount is available to the donor to make smaller charitable gifts to a number of charities when and how he or she wishes. A charitable deduction up to 60% AGI is available to the donor at the time the fund is set up. The donor does not receive an income interest when establishing a DAF, but he or she can time the contribution to have the greatest tax savings and then make gifts as and when he wishes.

The new tax law made some changes in the rules that apply to charity, but the structures available for larger commitments remain in place. If you have questions about this or want to set up a DAF with Wintrust Wealth Management, contact Ethel Kaplan at 312.431.6599 or ekaplan@wintrustwealth.com