Estate and Gift Taxes

Update on New Tax Plan and Nonprofits

Image result for not so bad Ok, the details are coming out and as I thought, nonprofits might actually benefit from the tax plan!

We still have an estate tax! Ok, it impacts much less people (exemption doubled to $11.2 million per person) but it didn’t impact many of our donors in recent years anyway. Just having it on the books is a good thing for the planned giving world – just giving them something to worry about is enough to spur talking to estate planning counsel.
Here is my favorite quote from Crescendo Interactive on the new tax bill: “Now that Congress has passed tax reform, one thing is clear – tax reform is good news for gift planners! Planned giving donors are still expected to itemize their deductions. In fact, with the loss of other non-charitable deductions, donors may be increasingly attracted to making a planned gift as a way to increase their overall deductions and reduce their taxes.“ I bolded the important ideas – planned giving (and certainly major gift donors!) donors will likely continue to itemize. I commend for Crescendo for getting this point – see next bullet point for one that I was shocked at how skewed others were looking at this….
Here is a quote from another provider who I will not mention as I felt their comments were just wrong: “Although the legislation maintains the current-law income tax charitable deduction, it will significantly reduce the number of taxpayers who itemize and effectively eliminate the income tax charitable deduction for a vast majority of Americans.” Please read that last, bolded sentence again – the claim that the new tax law effectively eliminates the deduction for the “vast majority of American” is absurd!!!! The “vast majority” of those who no longer will itemize are not your typical major or planned giving donors! (Ok, some older donors on fixed imcome will no longer itemize but that is ok – see next point!)
I think the big advantage for planned giving promotion coming out of this bill will be the IRA rollover. For those donors age 70.5 and up (clearly candidates for no longer itemizing), this will be a great option to heavily promote. Not itemizing? Considering a direct IRA rollover gift! It’s that simple.
Apparently, the 50% of AGI ceiling for charitable giving deductions per year is going up to 60%. This may be very helpful for larger gifts! More to come on this when I finally get to those details.

So, there you have it, for now. Charitable giving will be more valuable to those who are the biggest givers in 2018 and beyond. And, for the folks who may no longer need to itemize (a good thing for them as it means they save some taxes), the IRS rollover is a great option if they are 70.5+.

One last point! This blog (as well as most in this field) is apolitical – I’ve attacked both sides of the isle on foolish tax laws/proposals. I was shocked to see a major provider of planned giving services out there buying into a clearly political statement. The idea that this legislation is bad for charities is utterly ridiculous and to make it seem as though they just eliminated the income tax deduction is plainly foolish. Don’t get caught up in the politics – just look at what is changing and see where it can help (or hurt).

And, by the way, change is good for planned giving. It gets people thinking and addressing their plan! That is half the battle (considering less than half of Americans have any estate plans at all)!

Tax Deal: Does it impact fundraising?

Image result for tax plan cartoon It looks like we’ll have a tax bill signed any day and now we are left trying to figure out what impact, if any, this may have on nonprofit fundraising.

While many final details are still to be revealed, here are the main items that may impact our donors and their giving:

“[T]he corporate tax rate would be cut to 21 percent, while the top tax rate for individuals would drop to 37 percent from 39.6 percent. The new rates would take effect next year.” – Highest earner get a bit of a break (but might very well get hurt by other things in the bill). For example, if your AGI is $500,000, you just saved approximately $13,000. You will probably lose more than that if you live in an expensive neighborhood with a really big mortgage (i.e. your real estate taxes are more than $10,000 a year and your mortgage is over $750,000 – see below).

“The deduction for state and local taxes would be capped at $10,000 and taxpayers would be able to choose to deduct their property or income taxes, source said.” – Is the $13,000+ break from bullet point # 1 enough to offset the loss from this bill if you pay more than $10,000 in real estate taxes? The irony of this point is that it really hurts the wealthier sector – something not reported in the media very well.

“The standard deduction would be doubled under the deal, to $12,000 for individuals and $24,000 for families.” – This may actually put more money in the pockets of your middle and lower middle earners! Again, not reported in the media very well. Still, the question is if this disincentivizes charitable giving for those who now will no longer need to itemize? I suspect not but I am ready to start touting the IRS rollover giving provision in a big way for those 70.5+. You know what, I will be shocked if this hurts charities at all.

“Republicans senators leaving a GOP lunch told NBC News that the agreement would also set deductions for pass-through income at 20 percent.” – I am not sure what this means!

“Under the deal, the mortgage interest deduction would be allowed on loans up to $750,000, the sources said.” – Again, hurts our wealthiest sector. Ironically, nonprofit fundraising could be hurt if this sector is feeling really poor after they finally realize what happened. Not sure it will impact charity!

The verdict?

Still out. I am leaning towards people on the higher wealth/earning end looking for more deductions and therefore more charitable giving! Ok, I am an optimist. Most likely result for nonprofits: no change.

Look for more posts on this topic as the final details come to light.

Tax Bill Imminent – Time to Take Action?

Image result for musical chairs winners losers There still needs to be some negotiations between the House and Senate to come up with a final bill but they are pretty close. My accountant even told me to make sure I pay up my back state taxes owed since 2017 is probably the last year I can deduct them.

Ok – for Nonprofits – what is the bottom line? Anything terrible? Any advice for our donors? Good, bad or ugly for planned giving?

CLICK HERE TO SEE AN EXCELLENT FORBES ARTICLE GOING THROUGH THE VARIOUS PROVISION BY THE TAX GIRL BLOGGER (KELLY PHILLIPS ERB)

Here is my take on a few provisions that might be relevant to nonprofits:

The “standard deduction” is definitely going up – probably doubling. As a head of household, I will get around a $24,000 standard deduction. Seeing that I will still get the mortgage interest deduction as well as up to a $10,000 deduction on my real estate tax, I probably will still be an itemizer. In other words, donors who have significant expenses like mine will likely not be impacted. My verdict: no impact on nonprofit fundraising.
529 plan expansion – Under the House bill, parents may set up 529 plans for unborn children. Additionally, up to $10,000 per year of plan funds could be used for private elementary and secondary school expenses. Under the Senate bill, 529 savings plans could be used for public, private and religious elementary and secondary schools, as well as home school students. My verdict: might be very good for private schools – families with extra funds will be encouraged to park large sums in 529 plans to be used throughout private elementary and college years as a tax-free (on growth) fund. No impact on fundraising that I can see unless people tell you that they are funding 529 plans instead of giving you charitable gifts.
Estate tax repeal – Under the House plan, the federal estate tax would be phased out and completely disappear after 2024. Under the Senate plan, the federal estate tax would remain, but the exemption for federal estate and gift tax would double. In other words, we will have an estate tax, just applying to even less people. My verdict: not great for planned gifts like Lead Trusts which are driven by estate tax avoidance but no impact on planned giving as a whole or other vehicles.
Excise tax on big University Endowment Investment Income – Under House proposal, private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Small colleges will be exempt from the tax. Not sure how the Senate addressed this issue but I suspect it won’t end up in the final bill. For some reason it was not brought up in the Forbes article, it only impacts the biggest private schools (around 100 of them). My verdict: not sure.

I have been through too many “feared” tax law adjustments to be overly concerned about the impact on nonprofit fundraising. Since they are not tampering with the charitable income tax deduction, my hope is that those who benefit from the changes will be give more to nonprofits.

Still, there’s a lot of musical chairs scrambling going on here (fooling around with tax code under the current condition that is must be revenue neutral means there has to be winners and losers) so we won’t know the impact of the law for years to come.

Time to worry about tax law changes yet?

blog pick Probably not. It doesn’t seem that the President and Congress are about to do anything together.

Ok, but what if all of the Republicans actually get in line (or a few Democrats defect…like that’s going to happen!!)?

Any problems with the most recent tax proposal for non-profits?

Here is a quick overview of potential issues that might impact nonprofits:

Standard deduction would be increased to $12,000 for individual filers and $24,000 for married couples – I can tell you right now that this does not hurt charities whatsoever – maybe even helps. All it means is that middle and lower middle class America have less incentive to itemize but that sector is not likely to reduce charitable giving over a few tax benefits or not.
Personal exemptions and many itemized deductions would be eliminated – the income tax deduction won’t be touched directly so you actually might find upper middle class and higher Americans looking for more deductions (i.e. charitable deduction or maybe new fangled schemes for deductions). Probably a plus for nonprofits.
Estate tax, which now only applies to estates of more than $5.5 million per decedent (or $11 million per couple) would be entirely repealed – oh boy, it’s not happening. I’ll believe it when I see it. George Bush Jr. had the power and did “repeal” the estate tax but was it really a repeal? Go ahead and mess around with the estate tax again – all good news for consultants and attorneys. Probably not an impact on nonprofits but we will have to wait and see what they really are doing.

There is other stuff in it – the rest of which doesn’t yet rise to be addressed in this blog – here is a link if you want to read more: https://www.forbes.com/sites/janetnovack/2017/09/29/trump-plan-delivers-massive-tax-cuts-to-the-1-and-sharp-kick-to-upper-middle-class/#2f10cd861099

If you have ever seen my presentations, you would know that I subscribe to the 2% rule. Americans in general give away 2% of their disposable income/wealth each year, roughly equal to 2% of the economy/GDP (see Giving USA for more on those numbers). Since these percentages are very consistent, year in, year out, regardless of tax law changes, you have to believe that if anything happens, it is not likely to impact charitable giving (unless it increases or decreases Americans’ disposable wealth or the overall economy). Even the so-called estate tax repeal doesn’t frighten me, and will probably be replaced with something confusing that I’ll be speaking and writing about it for years.