estate tax repeal

Update on New Tax Plan and Nonprofits

Image result for not so badOk, 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)!

Time to worry about tax law changes yet?

blog pickProbably 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.