Charitable Contribution Planning for 2017

December 11, 2017

Charitable Contribution Planning for 2017

One of the things you should be considering before the end of the year is if you should accelerate or increase your charitable giving for 2017.  

Under current law, a taxpayer may claim an itemized deduction for charitable contributions of money or property.  The deduction generally is equal to the amount of cash or the fair market value (FMV) of the property contributed.  This may entitle the taxpayer to an income tax deduction in the year of the gift, which must be made by the last day of the tax year for which the return is filed. 

With the plan of simplifying the tax code, there are certain unintended consequences. One being a potential reduction in charitable giving.  The plan to increase the standard deduction and reduction of other itemized deductions will eliminate many middle-class taxpayers from continuing to itemize deductions.  As a result, there may be a decrease in charitable gifts made by taxpayers who will no longer itemize. 

Here are some items that you could consider now:

  1. Donor-advised Fund - A donor-advised fund, or DAF, is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, also known as a sponsoring organization.  Think of it like a charitable savings account.  The donor makes an irrevocable contribution of personal assets, and then immediately receives the maximum tax deductions that the IRS allows.  The donor names the DAF account, advisors, and any successors or charitable beneficiaries.  The contributions are placed into a DAF account where it can be invested and grow tax free.  At any time afterward, the donor can recommend grants from the account to qualified charities.  

Making a larger contribution to a donor-advised fund in December 2017 could lead to a larger tax deduction in 2017 while allowing the donor to make charitable gifts in 2018 or even further into the future.

  1. Donate Appreciated Securities – If you have unrealized gains in your taxable portfolio accounts, consider making charitable contributions of appreciated stock instead of cash. A gift of appreciated stock that has been held for more than one year generally can provide a double benefit by allowing the taxpayer to receive the charitable contribution deduction equal to the stock's fair market value on the date of contribution, and excluding from taxable income the gain on the stock appreciation which would normally be taxed at the capital gain rates of 15% or 20% depending on the tax bracket of the donor.
  1. IRA Distribution Contributed to Charity – If you are age 70 ½ or older, consider contributing your annual required minimum distribution directly to a charity. The distribution must be a direct transfer from the IRA trustee to the charitable organization.  If the distribution is contributed directly to a charity, the distribution is not included in the taxpayer’s taxable income for the year, but the taxpayer does not get a charitable contribution deduction either.   This provision could be beneficial to higher income taxpayers in which their itemized deductions are limited and they would not get a full deduction for the contribution.

A charitable contribution deduction is limited to a certain percentage of the individual's adjusted gross income (AGI).  The AGI limitation varies depending on the type of property contributed and the type of exempt organization receiving the property.  Generally, a cash gift to public charities and private operating foundations are fully deductible up to 50% of a donor's AGI, and gifts of appreciated property are deductible up to 30% of a donor's AGI.  For private non-operating foundations, gifts of cash generally may be deducted up to 30% of a donor's AGI, and gifts of appreciated property may be deducted up to 20% of a donor's AGI.   Excess charitable contributions greater than the applicable AGI limits may be carried forward and deducted in the following five tax years.

Article compiled by Christopher Johnson and Elizabeth Hassler.