Financial Literacy

Tax Planning for Charitable Giving and Estate Planning

In 2017, individuals donated more than $400 billion, which accounted for more than 70% of giving in the U.S.Most of that was donated to religious institutions (30%), followed by education (14%) and human services (12%).Outright cash gifts still dominate, but technology-enabled giving like online donations and crowdfunding have increased.2,3

Donors have reported both philosophical as well as financial motivations for giving, so it remains unclear how recent tax code changes will impact giving of their time and money for 2019 and beyond.

Passed in late 2017, U.S. tax-reform legislation made sweeping changes to the tax code, including changes to individual and corporate income tax rates. Known as the Tax Cuts and Jobs Act, the legislation became effective in 2018, with many of its provisions set to expire on Jan. 1, 2026. The law includes tax-rate cuts for individuals, corporations and pass-through businesses, and eliminates many individual and business deductions. There are numerous nuances within the tax code, such that some taxpayers will not experience a lower tax burden.

Because changes to the U.S. tax code are very complex and subject to change, taxpayers should carefully evaluate the potential impact tax legislation may have with regards to their charitable giving and estate planning goals.

The legislation includes increases in the standard deductions and the limitation or elimination of many personal deductions. As such, many taxpayers will switch from itemizing on Schedule A to taking the standard deduction. According to the Tax Policy Center, only 9% of taxpayers are expected to itemize their 2018 charitable contributions and Independent Sector estimates a $13 billion decrease in charitable giving due to the new tax law. However, there are numerous reasons and tax-advantaged ways to still give and support charitable causes.

For high-income donors who itemize, the limit for cash contributions has been raised to 60% of adjusted gross income (AGI), with excess carry forwards available for the next five years. With regard to wealth transfers, the legislation includes significant increases in the exemptions for gift and estate taxes, as well as in the generation-skipping transfer (GST) tax.

Given the significant changes, anyone with an estate plan should review it with their estate planning attorney to make sure it still accomplishes its objectives. Many married couples may be able to greatly simplify their estate plans. For many high net worth individuals, there may be substantial tax transfer savings from increased lifetime gifting, whether outright or in trust, due to increased exemptions. A careful review of assets is necessary to determine the most appropriate for lifetime gifting, and measure potential loss of basis step-up and capital gains impact, against possible transfer taxes.

Some well-known tax reduction strategies like making pre-tax contributions to your employer’s retirement plan, investing for qualified dividends and long-term capital gains, and municipal bondsmay still make sense for many. The tax savings can be used to help fund charitable giving, reduce debt, or fund other financial goals.

Other charitable giving strategies may also be helpful such as bunching, or consolidating multi-year deductions by making a large charitable gift during a single year, equal to the total donations you would have made over several years; Donating appreciated securities held more than one year to avoid paying capital gains taxes on the appreciation; Using a donor-advised fund to make a larger immediate income-tax deduction and then distribute the funds in future years according to your original giving plan; Making Charitable RMDs: Those over age 70½ with RMDs might benefit from transferring part or all of your RMD from an IRA directly to certain types of qualified charities to avoid taxation of the distribution. Give while living: Charitably inclined high net worth individuals with non-taxable estates might benefit from making charitable bequests prior to death.

Charitably minded individuals have a myriad of charitable vehicles and strategies to help them achieve their goals. Some are simple and straightforward, like writing a check, and others are more complex but potentially more impactful like donating appreciated assets to a donor advised fund. Be sure to work with your financial advisor, and tax and estate planning advisors to help develop a comprehensive strategy to help ensure you can live and give comfortably.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

1.Giving USA 2017; 2. The Digital Giving Index, Network for Good; 3.; Other references:; Raymond James; Giving USA 2017; Lanta Evans-Motte

Lanta Evans-Motte is an independent financial advisor affiliated with Raymond James Financial Services, Inc., Member FINRA/SIPC, 4061 Powder Mill Road, Suite 705, Calverton, MD 20705. Ms. Evans-Motte can be contacted at 301-459-2484 or This article does not constitute financial, investment, tax or legal advice. The opinions in this article are those of Lanta Evans-Motte and not Raymond James. The information has been obtained from sources independent of Raymond James and considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

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