Categories
Categories
All
Archive
Archives
February 2025
|
2025 is shaping up to be a very interesting year for tax policy, to say the least!
The Republican-led Congress and White House are aiming to use the budget reconciliation process to extend the Tax Cuts and Jobs Act (TCJA) of 2017. This process allows them to bypass typical filibuster rules and require only a simple majority of 51 votes in the Senate. So what does this mean to you and your colleagues and the way you should approach generating support for your endowment fund at the Community Foundation? The Community Foundation will help keep our nonprofit partners up-to-date on potential tax law changes in 2025 related to the scheduled expiration of provisions in the Tax Cuts and Jobs Act (TCJA) of 2017, and what might happen if the TCJA provisions wind up expiring instead of being extended. Here are three things that are important to know: Potential reduction in estate and gift tax exemption The estate and gift tax exemption is slated to decrease significantly at midnight on December 31, 2025. Currently, the exemption is $13.99 million per person. After 2025, this could be reduced to approximately $7 million per individual and $14 million per couple. This change may impact charitable giving strategies, particularly for high net-worth donors who use estate planning as part of their philanthropic efforts. Changes to charitable deduction limits The TCJA temporarily increased the deduction limit for cash contributions to public charities from 50% to 60% of adjusted gross income (AGI). If this provision expires, the limit may revert to 50% of AGI. This reduction could affect the tax benefits for donors making large charitable contributions, potentially influencing their giving decisions. Increase in standard deduction and impact on itemized deductions The TCJA significantly increased the standard deduction, which led to a reduction in the number of taxpayers itemizing deductions. If these provisions expire, the standard deduction could revert to lower pre-TCJA levels. This change might increase the number of taxpayers who itemize, potentially making charitable deductions more attractive for a broader range of donors. However, it's important to note that the overall impact on charitable giving could be complex, as it may be influenced by other factors such as changes in tax rates and the reinstatement of certain itemized deductions. These potential changes underscore the importance for charity fundraisers to stay informed about tax law developments and to work closely with donors and their financial advisors to navigate the evolving landscape of charitable giving strategies. For context, if you like to get in the weeds, we recommend taking a look at a recent study that breaks down the flow of capital into the nonprofit sector. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. We all know that the new year and a new administration brings lots of potential change. So what is going on that you need to know about to serve your charitable clients?
At the top of the list of issues we’re watching is what might happen with the Tax Cuts and Jobs Act (TCJA) of 2017. As a quick refresher, the TCJA introduced several changes that significantly impacted charitable giving in the United States. These changes are set to expire at the end of 2025, and their potential extension factors into charitable planning techniques. You’ll no doubt recall that the TCJA lowered individual income tax rates across the board, which in turn decreased the tax savings for each dollar donated, making charitable contributions slightly less attractive from a tax perspective. What’s more, TCJA provisions nearly doubled the standard deduction. (In 2025, the standard deduction is $15,000 for single filers and $30,000 for a married couple filing jointly.) This increase led to a dramatic reduction in the number of taxpayers who itemized their deductions. As a result, fewer taxpayers could claim charitable deductions, potentially discouraging giving among those who previously itemized. Indeed, research estimated that U.S. charitable giving fell by about $20 billion in 2018, the first year the TCJA was in effect. In addition, the TCJA roughly doubled the estate tax exemption, which has reached $13.99 million per person for 2025. The higher exemption has diluted purely tax-driven motivations for charitable giving among your wealthy clients. With fewer estates subject to tax, many advisors are working with a smaller pool of clients for whom charitable bequests are a useful technique for reducing taxable estates. Naturally, tax policy plays a role in your clients’ charitable giving behaviors, and certainly the giving behaviors following TCJA reflected tax policy’s influence. Nevertheless, studies have shown that most donors are motivated by factors other than saving taxes. Reasons for giving include a sense of duty to give back to society, a desire to tackle inequality, personal passion for specific charitable causes, religious beliefs, and dedication to supporting those less fortunate. Your clients who give to charity benefit emotionally from their gifts, and of course they like knowing that they are helping others and strengthening community ties. While tax benefits certainly are part of a client’s decision-making process, they’re likely a secondary consideration rather than the primary reason for giving. Indeed, even with tax benefits, your client will always end up with less money after making a charitable contribution, signaling that financial gain is not the main driver of philanthropy. Keep this in mind as tax developments unfold. Despite the many unknowns, what we do know is that something will happen in 2025 that influences charitable planning. Although TJCA provisions are set to expire at the end of 2025, it’s too soon to determine exactly how you should advise your clients about their charitable planning strategies. Note three potential outcomes of tax policy developments this year:
Of course, we’ll keep you posted! The team at the Community Foundation is here to help you structure charitable plans to empower clients to achieve their philanthropic goals, with or without a tax deduction. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. As attorneys, CPAs, and financial advisors, you’re very aware of potentially significant upcoming changes to the tax laws that could impact your high net-worth clients. Whether or not a post-election Congress takes action to prevent the estate tax exemption sunset at the end of 2025 will potentially affect the way you design your clients’ wealth transfer strategies.
During this phase of uncertainty, it may be useful to reflect on historical estate tax changes to see how similar situations have been resolved in the past, while at the same time taking a practical approach and advising clients that, while commentators may speculate, it is still impossible to accurately predict what might happen. Estate taxes certainly will continue to be on the minds of leaders in the charitable sector for many months to come. As you and other tax planning professionals watch and wait, it is important to keep charitable planning high on your list of strategies that could help blunt the impact of a lower estate tax exemption if the sunset were to occur. That’s because gifts to charities are deductible from a client’s taxable estate. Even during this era of uncertainty, be sure to keep in mind an important planning technique for your charitably-inclined clients that delivers multiple tax benefits and offers some degree of flexibility: Naming a charity, such as a fund at the Community Foundation, as the beneficiary of an IRA or other qualified retirement plan. Here’s why this is such a powerful technique, especially now: Income tax savings. When your client designates a fund at the Community Foundation as the beneficiary of an IRA, the fund receives the assets without having to pay income taxes. This is because charities are tax-exempt entities, allowing them to receive funds from qualified retirement accounts tax-free after your client’s death. This is not the case with qualified retirement plans flowing to heirs; the income tax hit can be significant. Estate tax deduction: Naming a charity as a beneficiary of a retirement plan results in an estate tax charitable deduction, which reduces any applicable federal estate taxes. This means that the full value of the IRA can flow into your client’s fund at the Community Foundation free from the estate tax burden. Flexibility. Clients can revise IRA beneficiary designations anytime during their lifetimes. So, as the end of 2025 draws closer, a client can update an IRA beneficiary designation to name a fund at the Community Foundation, which would protect against a drop in the estate tax exemption. If the sunset does not occur, the client could of course revise the beneficiary designation to leave a greater portion of retirement plan assets to heirs. Remember, though, that the income tax hit will still apply to proceeds flowing to heirs. That’s why many of your charitable clients will choose to leave IRAs to their funds at the Community Foundation even if the estate tax exemption does not sunset. And, of course, many clients truly want to leave a legacy and would love to incorporate charitable giving into their estate plans regardless of what happens with the tax laws. As tax and estate planning advisor, it is your responsibility–and opportunity–to help clients achieve their philanthropic wishes. Please reach out to the team at the Community Foundation to dive deeper into the ways you can help your clients fulfill their charitable goals, especially during this time when future tax laws are up in the air. We are here to help! The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. If you’ve reached or are nearing retirement age, you may be evaluating how charitable giving fits into your life in a bigger way than it did during your working years. If you’ve found that you have more time, more money, or both, now that work and raising children are in the rear view mirror, be sure you’re familiar with the various charitable giving techniques that are most appealing to retirees and the various ways the Community Foundation can help.
Here are four signals that it may be time to update your philanthropy strategies with the help of the Community Foundation team:
If these ideas capture your attention, please reach out! The Community Foundation is here to help you make the most of your giving, no matter what causes you choose to support. We look forward to collaborating to make your retirement years fulfilling and rewarding for you and the people–and community–you love. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. Many eyes are on the election aftermath seeking clues about what might happen to the tax laws. Of particular interest is the much-analyzed sunset of the higher estate tax exemption, scheduled for the end of 2025 absent intervening legislation. “Absent intervening legislation” is the key, of course. The November 2024 elections will not immediately change estate tax laws, and it’s a long road from here to there.
For starters, the new Congress will not be sworn in until January 2025, and only after the session begins will Congress initiate the budget reconciliation process which is ultimately required to make tax law changes. The budget reconciliation process typically starts with the President submitting a budget to Congress. Then, both chambers of Congress pass budget resolutions with reconciliation instructions. Then, committees draft legislation to meet the budget targets, and the budget committees consolidate the bills into a single omnibus bill. Then, each chamber votes on its respective omnibus bill. What all of this means is that the status of the estate tax exemption is still very much up in the air. And this means that financial, tax, and estate planning is going to be difficult for many more months. With the estate tax exemption set to drop from $13.61 million per person in 2024 to approximately $7 million per individual on January 1, 2026, a lot is at stake. Should a high-net worth taxpayer start making aggressive gifts now to family members and a donor-advised or other type of fund at the Community Foundation, anticipating that the sunset will indeed occur? Or take a “wait and see” approach? Planning is further complicated by the dangers of waiting until the last minute. Not only is it tough to pull off a complex estate plan or business succession plan quickly, but it’s also dicey because the IRS likely will be on the lookout for situations to invoke the step transaction and reciprocal trust doctrines. So what can you do? First and foremost, if you are working with charitably-inclined families who would be impacted by the estate tax exemption sunset, please reach out to the Community Foundation right away to start looking at options. And if you aren’t sure whether a client is charitably inclined, you absolutely must ask them. It’s always important to talk about charitable giving, and especially right now when the stakes are so high. We look forward to many conversations with you and your clients as estate tax developments unfold! The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. You’re busy as 2024 draws to a close! The team at the Community Foundation is committed to researching, curating, and keeping you up-to-date on the latest trends and developments that could impact your clients’ charitable giving strategies. If you only have 60 seconds, we recommend scanning these two quick updates.
Charitable giving can help bridge generations’ definitions of “wealthy” The recently-released Bank of America Private Bank Study of Wealthy Americans is a must-read (or at least a must-skim) report because it offers insights into shifting views on wealth, and it also highlights a disconnect in inheritance expectations. Notably, younger individuals tend to rally around a definition of “wealthy” in terms of having the means to live a life of purpose and make a difference. Older generations are more likely to define “wealth” in financial terms. Important for charitable planning is the finding that older generations may not be planning to leave the inheritance that their children and grandchildren expect. Working with the Community Foundation to help clients establish a multi-generational charitable giving plan makes it easier to get expectations out in the open and keep the entire family meaningfully involved in the family’s wealth over the long term. Must-know tips for clients’ year-end giving We know you’ve got a lot on your plate as the end of the year approaches. Even if charitable giving does not appear on the surface to be a burning issue in client meetings, it’s still crucial that you keep in mind a few essential charitable giving techniques because your clients do care. Please scan these three important techniques, and please reach out to the Community Foundation on any matter related to charitable giving.
Reach out to the Community Foundation team today! November is the time to set things in motion so you don’t get caught up in the year-end rush. We are here for you. The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Many of your philanthropy-minded clients certainly enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it.
Here’s how this might go. Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at the Community Foundation said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?” You: “Ummmm ….” And no one could blame you for that response! The rules behind this are obscure and confusing, even by IRS standards. Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible. Big picture, the IRS is likely striving for administrative simplicity to enforce the longstanding tax principle that a taxpayer cannot deduct value given to a charity that is effectively transferred back to the taxpayer. At a typical event, of course, your client receives food, drinks, entertainment, and even t-shirts and other fun swag. The IRS knows this! The IRS’s commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax deductible and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fund holders. In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket. Ever since the notice was released, it’s been on the radar of tax professionals, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments. There is good news, though! The team at the Community Foundation is on it! We understand the rules inside and out, and we are here to help your clients stay compliant and achieve their charitable goals. In situations like this, we help your clients structure gifts from their donor-advised funds to support general event sponsorships if the client declines all benefits, or even recommend that the client pay the ticket portion from their personal funds and use donor-advised funds to give separate and additional amounts for general support unrelated to the event specifically. We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not receiving any benefit in return. Please reach out anytime! We’re happy to help! The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. If you’ve been working with the Community Foundation for a while, you certainly know that it’s easy to make a contribution to your fund. And by now, you likely know not to automatically reach for your checkbook! The team at the Community Foundation is happy to work with you and your tax advisors to review the options for types of gifts. Here’s food for thought:
Marketable Securities Gifts of long-term appreciated stock to a donor-advised or other type of fund at the Community Foundation is always one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be avoided. Gifts of publicly-traded stock, for example, are easy to transfer to a fund. The Community Foundation team provides transfer instructions to make the process simple. As is the case with a cash gift, the Community Foundation will provide a receipt for tax purposes, and the gift of stock will be valued at the shares’ fair market value on the date of transfer. When the Community Foundation sells the shares, the proceeds flow into your fund without any reduction for capital gains taxes. This is because the Community Foundation is a 501(c)(3) charitable organization and therefore does not pay income tax. That would not have been the case, however, if you had sold the stock first and then transferred the proceeds to your fund; you would owe capital gains tax on the sale. Especially in cases where you have held the stock a long time and it’s gone up significantly in value, the capital gains hit can be big. Closely-Held Business Interests The Community Foundation team is happy to work with you and your advisors to explore how you might give shares of a closely-held business to a fund at the Community Foundation. Not only will transfers be eligible for a charitable deduction during the year of transfer (and at fair market value if the shares are held for more than one year), but also these gifts could potentially reduce income tax burdens triggered upon a future sale of the business. Be sure to talk with our team well before any potential sale is in the works; otherwise, you could lose out on tax benefits. Gifts of closely-held business interests are powerful but can be tricky to administer. QCDs from IRAs As always, keep in mind that the Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If you are over 70 ½, you can direct up to $105,000 from your IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at the Community Foundation. If you are subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means you avoid income tax on the funds distributed to charity. Plus, keep in mind that leaving your IRA to your fund through a beneficiary designation is a very tax savvy move, so be sure to discuss this option with our team and your tax advisors. Real Estate You can give a tax-deductible gift of real estate, such as farmland or commercial property, to your fund in a variety of ways. An outright gift is always an option; lifetime gifts of real estate held for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of your taxable estate. Other ways to give real estate include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for you and your family. Life Insurance Don’t overlook life insurance as an effective charitable giving tool, whether by naming your fund at the Community Foundation as the beneficiary or, in the case of whole life policies, naming the fund as beneficiary and transferring the policy itself. If you transfer a policy, you may be able to make annual, tax-deductible contributions to the Community Foundation to cover the premiums. Other “Alternative” Assets The Community Foundation is happy to discuss your options for giving other non-cash assets to your fund at the Community Foundation, including oil and gas interests, negotiable instruments, cryptocurrency, artwork, and collectibles. We look forward to working with you to explore all the options! The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. It probably would not surprise you to learn that over 42% of Americans own an IRA. In many cases, IRAs–especially for people who have rolled over one or more employer retirement plans–represent a significant portion of a household’s net worth. When it comes to charitable planning, IRAs should never be ignored. Indeed, your IRA may offer some of the best opportunities to support the causes you care about.
For starters, no matter what your age, consider the benefits of changing the beneficiary designation on your IRA to name your fund at the Community Foundation as the recipient of all or a portion of the account. This is an easy, tax-effective way to leave a bequest to support the causes you care about. The Community Foundation can help you structure the terms of your fund to match your intended charitable legacy. For example, you can make arrangements for your children to serve as advisors on the fund to recommend grants to particular areas of interest, or the Community Foundation itself could deploy the money to support the community’s areas of greatest need or even the support foundation’s own mission-based operations. The reason an IRA beneficiary designation is such an ideal form of charitable bequest is because of the tax advantages. Dollars flowing to the Community Foundation from an IRA upon your death are not subject to estate tax. In addition, as a public charity, the Community Foundation does not pay income taxes on the IRA assets it receives. By contrast, if you were to name your children as beneficiaries of the IRA, those IRA distributions to the children are subject to income tax, which can be hefty given the tax treatment of inherited IRAs. Plus, the IRA assets would be included in your estate for estate tax purposes. Exploring ways to give your IRA to charity can also serve as a helpful reminder to review all of your beneficiary designations. Although they may appear to be innocuous and may even be easy to overlook, those beneficiary designation forms actually represent critical components of your estate plan. To understand this, you need look no further than the cautionary tale of a Procter & Gamble employee who died in 2015, leaving behind a retirement plan. Way back in 1987, the employee had named his girlfriend as the beneficiary of his retirement plan. Despite their relationship ending, the employee never updated the beneficiary designation. By the time the employee died, the retirement plan, which had grown to nearly $1 million, passed via the beneficiary designation to the 1980s ex-girlfriend. Finally, if you have reached the age of 70 ½, you can make what’s known as a Qualified Charitable Distribution (“QCD”) from your IRA directly to certain charities, including a designated fund or a field-of-interest fund at the Community Foundation–up to $105,000 per year per spouse. You won’t pay income tax on the distribution and, happily, if you’ve reached the age for Required Minimum Distributions, your QCDs count toward those distributions. The upshot? Next time you review your financial and estate plan with your advisor, take a close look at your IRAs. If you intend to leave a charitable legacy, or if you’d like to support your favorite organizations during your retirement years, your IRA may be your best bet to make a big difference in the causes you care about. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. As you’re looking ahead to year-end giving, you’re likely thinking about transferring cash, or ideally appreciated stock, to your donor-advised fund so that you can maximize tax benefits and support the charities you love. And absolutely, a donor-advised fund can be a fabulous component of your overall charitable giving portfolio.
Think beyond donor-advised funds, though, especially at year-end. The Community Foundation offers a wide variety of funds to meet your charitable giving goals and also help you maximize your tax and financial planning efforts. Two excellent fund types that are sometimes overlooked are designated funds and field of interest funds. When you set up a field of interest fund at the Community Foundation, you’re setting aside charitable dollars for a specific charitable purpose. For example, you might decide to set up a field of interest to support research for rare diseases, to support organizations that assist homeless families in getting back on their feet, to enable art museums to acquire works that celebrate the region’s diversity, and so on. With a field of interest fund, you’re leaning on the knowledgeable team at the Community Foundation to distribute grants to achieve your wishes. As is the case with a donor-advised fund, you’ll choose a name for your fund, whether you wish to use your own name (e.g., Samuels Family Fund or Samuels Family Fund for the Arts), maintain anonymity (e.g., Maryville Fund for the Arts), or something else altogether (e.g., Bettering Our World Fund). A designated fund is a good choice if you know you want to support a particular charity or charities for multiple years. This is useful so that the distributions can be spread out over time to help with the charity or charities’ cash flow planning, which allows you to potentially benefit from a larger charitable tax deduction in the year you establish the fund if, for example, your tax rates are higher than usual in that particular year. Your designated fund document allows you to specify the charities to receive distributions according to a spending policy you select. Last but not least, if you are over the age of 70 ½, pay particular attention to designated funds and field of interest funds as year-end approaches because these two types of funds, unlike donor-advised funds, can receive “Qualified Charitable Distributions” from IRAs - up to $105,000 per person in 2024! As always, thank you for the opportunity to work together! The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. One of many items on the legislative “watch list,” especially in light of the upcoming elections, is the standard deduction. Without intervening legislation, in 2026 the standard deduction for individual taxpayers younger than age 65 is scheduled to drop from $14,600 to $8,300.
While this may spell higher taxes for some taxpayers, the news could be positive for charitable giving. You’ll recall that the Tax Cuts and Jobs Act of 2017 increased the standard deduction significantly. As a result, only 9% of taxpayers itemized deductions in 2020 compared with 31% in 2017. Although certainly not the only factor motivating charitable giving, tax incentives do play a role in donors’ decision-making about whether, when, and how much to give. Indeed, statistics recently released by the National Bureau of Economic Research indicated that the increased standard deduction resulted in $20 billion fewer charitable donations in 2018 alone. The Community Foundation is happy to work with you and your tax advisors to map out a charitable giving plan for the next few years to navigate anticipated changes in the law. For example, this year you could consider using a technique called “bunching” to make two years’ worth of gifts up front to your donor-advised fund to take advantage of the standard deduction while it is still high. If you determine that bunching is right for you, naturally, cash is easy to give in a year of higher-than-expected income. So, for example, if you earn a large bonus this year, get a big increase in compensation, take a job buyout, or experience a significant liquidity event, your surplus income could make bunching ideal. Most of the time, though, even when you deploy a bunching strategy, donating highly-appreciated marketable securities is a better choice than giving cash because it is extremely tax efficient. Stock given to a public charity, such as your donor-advised or other type of fund at the Community Foundation, typically is deductible at the asset’s fair market value. The Community Foundation, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support your philanthropic interests than if you had sold the stock and given the proceeds to your fund. You can think outside of the box, too, and explore other assets that make great gifts to your fund. As is the case with gifts of other long-term appreciated assets, a gift of real estate or closely-held stock avoids capital gains taxes and results in more money for your favorite causes than if you had sold the asset, taken the tax hit, and donated the proceeds. The bottom line? Now is a perfect time to look ahead at your charitable giving plans so that you don’t leave dollars behind. Your own financial situation, as well as the charities you support, will benefit from your careful planning. The Community Foundation is here to help! The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. We’re giving you fair warning that the team at the Community Foundation is not going to stay quiet when it comes to emphasizing the importance of understanding at least the basics of the estate tax exemption sunset. Yes, we will be that broken record!
As a reminder, the estate tax exemption is the total amount a taxpayer can leave to family and other individuals during life and at death before the hefty federal gift and estate tax kicks in. This exemption is scheduled to drop big time after December 25, 2025. For 2024, the estate tax exemption is $13.61 million per individual, or $27.22 million per married couple. (Later this year, the IRS will issue inflation adjustments for 2025.) For 2026, without legislation to prevent it, the exemption is scheduled to fall back to 2017 levels. Adjusted for inflation, this would total roughly $7 million per person. Of course, no one will know for sure that the estate tax exemption is sunsetting until it actually sunsets. Certainly the upcoming election could impact the likelihood that Congress will intervene and extend the tax cuts from 2017 that increased the estate tax exemption in the first place. In any event, it is essential that you and your team understand what’s going on here so that you can be prepared to encourage your donors to discuss planning options with their advisors over the coming months while the issue is in limbo. You want your donors to know that you are on top of it! The net-net here is that a lot more people – including many of your donors – could be subject to estate tax in the not-too-distant future. This, in turn, means that your endowment fundraising strategies could get a shot in the arm as your donors work with their advisors to plan gifts and bequests to decrease their taxable estates through the charitable deduction. At the very least, the estate tax exemption is a fantastic conversation piece for your donor meetings, regardless of whether the sunset actually occurs at the end of next year. Potential tax increases tend to get donors’ attention, and you want to be right there in the mix to ensure that gifts to your endowment fund are on the radar. Please reach out to the Community Foundation team! We’d love to help you seize this opportunity. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Welcome to summer! We've put together six tips to keep in mind as you plan your charitable giving for the coming months, years, and even decades. As always, the team at the Community Foundation is happy to be a resource!
Donate appreciated stock to your fund at the Community Foundation. Yes, yes, we absolutely understand how easy it is to write a check when you want to boost your donor-advised or other type of fund at the Community Foundation. If you can remember to pause before you pull out your pen, though, it really does pay off to consider whether appreciated stock would be a better way to add to your charitable giving account. When you give shares of long-term appreciated stock, you can be eligible for a charitable tax deduction at the fair market value of the shares. Then, when the Community Foundation sells the shares and adds the proceeds to your fund, the fund–a 501(c)(3) charity–is not hit with capital gains tax. By contrast, if you were to sell those shares and give to your fund from the proceeds, you’d have a lot less cash to work with. Please reach out to the Community Foundation anytime to learn more about how easy it is to take advantage of this tax-savvy giving technique. Plan ahead for your business exit. If you own all or part of a private business, keep in mind that charitable giving can factor into your eventual exit strategy. You could be sitting on substantial unrealized capital gains if the business has grown a lot over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds you get to keep. No capital gains tax will apply, however, to the sale of the portion of the business owned by your donor-advised or other type of fund at the Community Foundation. Plus, you can be eligible for a charitable income tax deduction in the year of the transfer based on the fair market value of the shares–not the cost basis, as would be the case if you’d transferred the shares to a private foundation. Keep in mind that a strategy like this only works with careful planning, so be sure to contact the Community Foundation team well in advance of setting a plan in motion. We are happy to work with you and your advisors to help achieve your charitable and financial goals. Start paying attention now to the estate tax exemption sunset. The estate tax exemption–the total amount a taxpayer can leave to family and other individuals during their life and at death before the hefty federal gift and estate tax kicks in–is scheduled to drop, rather precipitously, after December 25, 2025. For 2024, the estate tax exemption is $13.61 million per individual, or $27.22 million per married couple, an increase over 2023 thanks to adjustments for inflation. Later this year, the IRS will issue inflation adjustments for 2025. For 2026, without legislation to prevent it, the exemption is scheduled to fall back to 2017 levels, adjusted for inflation, which would roughly total $7 million per person. That is quite a drop! This means a lot more people–maybe including you–could be subject to estate tax in the not-too-distant future. The team at the Community Foundation is happy to work with you and your advisors to explore how charitable giving techniques can help you avoid estate tax and leave a legacy for the community, especially if you start planning now. If you can take advantage of the QCD, do it. A Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If you are over the age of 70 ½, you can direct up to $105,000 from your IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at the Community Foundation. If you’re subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. Through a QCD, you avoid income tax on the funds distributed to charity. Our team can work with you and your advisors to go over the rules for QCDs and evaluate whether the QCD is a good fit for you. Review your IRA beneficiary designations. As you review your assets and how they are titled, perhaps in connection with an annual financial and estate plan review, pay close attention to tax-deferred retirement plans such as 401(k)s and IRAs. Typically, you’ll name your spouse as the primary beneficiary of these accounts to provide income following your death or to comply with legal requirements. But as you and your advisors evaluate whom to name as a secondary beneficiary of these tax-deferred accounts, don’t automatically default to naming your children or your revocable trust. You and your advisors may determine that naming a charity, such as your fund at the Community Foundation, is by far the most tax-efficient and streamlined way to make gifts to your favorite causes upon your death and establish a philanthropic legacy. A bequest like this avoids not only estate tax, but also income tax on the retirement plan distributions. That’s why non-retirement fund assets may be better-suited to pass to children and grandchildren. Embrace a holistic approach to philanthropy. When you work with the Community Foundation, charitable giving is easy, flexible, and rewarding. As the hub of your charitable giving, the Community Foundation offers a wide range of fund types, services, and ways for you and your family to get involved with the community you love. Many of our fund holders use a donor-advised fund to organize annual giving to charities. We can also help you establish a designated or field-of-interest fund to complement the function of your donor-advised fund. A designated fund allows you to support a specific charity over the long term, while a field-of-interest fund focuses your support on a particular area of community need by leveraging the Community Foundation’s expertise. We’d also be honored to work with you and your advisors to structure a bequest to the Community Foundation in your estate plan to support important causes, as well as the Community Foundation’s work, beyond your lifetime. We are here to help you make the most of your philanthropic intentions, and it is an honor to work together. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. The team at the Community Foundation is committed to keeping an eye out for trends and developments that impact charitable giving and your ability to raise funds for your organization’s mission.
Here are three developments you'll want to track:
Thank you, as always, for the opportunity to work together! It is our honor to be your partner in philanthropy and community impact. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. A donor-advised fund is one of many types of funds you can establish at the Community Foundation. Field-of-interest funds, designated funds, unrestricted funds, and scholarship funds are also popular and can make a big difference in the community while also fulfilling your goals for tax and charitable planning.
If you’ve established a donor-advised fund at the Community Foundation, you know it’s useful because it allows you to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, you can recommend donations from the fund to your favorite charities to meet community needs as they emerge. Your gifts to your donor-advised fund are tax deductible transfers to the Community Foundation, which is a charitable organization recognized under Internal Revenue Code Section 501(c)(3). The Community Foundation follows the Internal Revenue Service’s requirements that disbursements from your donor-advised fund meet certain important qualifications to preserve that charitable tax status–for everyone’s benefit. It’s a good idea to periodically review a few types of disbursements that don’t meet the IRS’s rules and therefore are not permissible donations from your donor-advised fund. For example:
We look forward to hearing from you! As always, the Community Foundation team is honored to be your first call when you encounter a question about your donor-advised fund or any other charitable giving opportunity. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. As you and your team build momentum implementing your 2024 fundraising plan, keep in mind that many individual donors look at the same criteria used by foundations to determine whether to support a charitable organization. You may not even be aware that a prospective donor is conducting due diligence. Especially when a donor is considering making a large gift or setting up a bequest, gaining the donor’s confidence is key.
The team at the Community Foundation is always happy to serve as a sounding board as you strive to continuously improve your organization’s governance and operational documentation. Here are 3 items you might consider reviewing as you do a little spring cleaning. Governing Documents Make sure your articles of incorporation are up-to-date and reflective of your current mission. Donors who are considering a large gift will want to see that your legal documents are in ship shape, especially with respect to the language required to achieve Section 501(c)(3) status. If you’re in doubt, consult the IRS’s suggested language. You’ll also want to review your bylaws. Bylaws can become outdated, in some cases due to technology. For example, you’ll want your bylaws to include permission to use up-to-date mechanisms to gain board approval, such as through an online poll in lieu of an in-person meeting. Tax Returns You’re no doubt on top of the need to file the annual Form 990 tax return. Make it a point, though, to check for consistency between your Form 990 and the Form 1023 you filed (likely years ago) to secure the IRS Determination Letter granting charitable status. Make sure your organization’s charitable purpose is still stated correctly. Consistency across key documents is important to a lot of large donors. Indeed, many donors review the Form 990 carefully before they decide to make a gift. Make sure yours is accurate and compelling. Gift Acceptance Policy Make sure you’ve recently reviewed your policies for how your organization handles the acceptance of certain gifts, especially if they fall in the category of “Non-Standard Contributions” as defined by the IRS. Gifts of hard-to-value assets should not be undertaken lightly. We encourage you to reach out to the Community Foundation to assist in establishing a gift acceptance policy that will protect your organization and empower your fundraisers to engage in successful conversations with donors. To that end, the Community Foundation offers nonprofit organizations the opportunity to establish endowments and reserve funds to benefit from the Community Foundation’s governance and oversight, especially related to accepting complex gifts, as well as relying on the Community Foundation for all of the policies and administration associated with an endowment or reserve. We look forward to working with you! This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. The Community Foundation is committed to providing timely updates on legal and policy developments to help you and other professionals who advise philanthropic clients stay on top of best practices in charitable planning. In that spirit, donor-advised funds and the rules governing these vehicles are topics that are popping up more frequently in financial and even mainstream media. Our team is closely watching these regulatory developments.
As background, in November 2023, the Internal Revenue Service issued proposed regulations that would change the way donor-advised funds are defined and how they operate. Especially leading up to the May 6, 2024 public hearings, the proposed regulations have created quite a buzz. If you’d not yet heard about the proposed regulations, the April 19, 2024 letter to Treasury Secretary Janet Yellen, signed by 33 members of Ways and Means, might have grabbed your attention. The letter lays out concerns that “these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations.” You’ll hear from us when (and if) the proposed regulations, or some version thereof, go into effect and what to do about it. As you track the issue, however, it’s important to remember that a donor-advised fund is just one of many types of funds your clients can establish at the Community Foundation. Consider:
We look forward to helping you serve your charitable clients regardless of where the proposed regulations ultimately land. And we’ll keep you posted! The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. In our last newsletter, we shared that our team is closely tracking the IRS’s proposed regulations concerning donor-advised funds, issued in November 2023. Certainly these regulations are just “proposed”; it is unclear whether and to what extent they will become final.
If you routinely read financial publications, you may have seen articles about these proposed regulations and speculation about what they might mean for charitable planning. At this point, it is anyone’s guess! You can rest assured that the Community Foundation team is on top of the issues, and we will update all of our fund holders as more information becomes available. Indeed, you may have seen the news that the IRS has scheduled public hearings on the proposed donor-advised fund regulations, set for May 6, 2024, so it’s not likely we’ll hear anything definitive for several months. In the meantime, you might enjoy reading up on donor-advised funds and the many ways they can help grow philanthropy. The Donor Advised Fund Research Collaborative’s recently-released study of donor-advised funds is full of statistics and insights about the popularity of donor-advised funds and how they help grow philanthropy. We’ll keep you posted! This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. On an ongoing basis, the team at the Community Foundation tracks legislation, legal developments, trends, news, and innovative strategies for all types of charitable giving so that we can keep fund holders and their advisors up to date.
Recently, donor-advised funds have been the subject of conversation within financial and estate planning circles, as well as a trending topic in philanthropy, related to a set of proposed regulations issued by the IRS late last year. The IRS has scheduled public hearings on the proposed regulations, set for May 6, 2024. As just one of many types of funds your clients can establish at the Community Foundation, the donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge. Our team has compiled a list of articles we’d recommend if you’d like to dig deeper into the topic of donor-advised funds.
While these materials are useful to gain an understanding of the current situation, at this point, no one can predict what will happen with the proposed regulations--whether and how they will be revised or when they might become effective, if ever. As always, our team is staying on top of the issues. We’ll keep you posted! The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Tax time has its silver linings! Going over a tax return with a client helps start a productive conversation about ways to plan gifts to charity more effectively. As you scan 2023’s charitable contributions, talk with the client about whether those charitable gifts were made with cash or with other assets and then steer the conversation toward discussing the most effective assets to give to charity during 2024 and beyond.
Here is a four-point checklist that can help you advise your clients about the range of charitable giving options.
Opening up the full range of charitable giving options for a client can help you structure a holistic estate and financial plan that meets the client’s objectives for family wealth, philanthropy, and tax effectiveness. Reach out anytime to the team at theCommunity Foundation to discuss techniques and strategies. The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Your clients who own highly-appreciated works of art certainly can consider making gifts of this property to a charity. Use caution, though, when helping clients structure gifts of artwork. To be eligible for a charitable deduction at fair market value, the nonprofit recipient’s use of the donated artwork must meet certain qualifications, in that the artwork has to be used for its charitable purpose (think art museums). On top of that, be wary of techniques that recently have come under severe IRS scrutiny and have been determined to circumvent the rules for tax deductions.
This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. As you review your donor lists and plan 2024 cultivation activities, pay particular attention to donors you know are over the age of 70 ½. That’s because these donors are eligible to make what’s known as a “Qualified Charitable Distribution,” or “QCD,” to your organization’s endowment fund at the Community Foundation directly from the donor’s IRA.
You’ve likely heard a lot about QCDs because they are becoming a very popular financial and charitable planning tool. At the same time, QCDs are growing as the source of more and more confusion. Here are answers to the questions donors might ask you about QCDs so that your team can be prepared to answer them. As always, please do not hesitate to reach out to the Community Foundation for assistance. “Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?” Short answer: Almost. Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free. “What is the difference between a QCD and an RMD?” Short answer: Quite a bit! But a QCD can count toward an RMD. Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 73. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution. “Can a donor make a Qualified Charitable Distribution even if the donor is not yet required to take Required Minimum Distributions?” Short answer: Yes–within a very narrow age window. Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 and is now up to 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs). The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication. “Can a donor direct a QCD to a fund at the Community Foundation?” Short answer: Yes, if it’s a qualifying fund. Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at the Community Foundation can receive QCDs. These funds include endowment funds established by nonprofit organizations. “How much can a donor give through a QCD?” Short answer: $105,000 per year. Long answer: A Qualified Charitable Distribution permits a donor (and a spouse from a spouse’s own IRA or IRAs) to transfer up to $105,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, a married couple may be eligible to direct up to a total of $210,000 per year to charity from IRAs and avoid significant income tax liability. The Community Foundation is here to help you and your team tap into the potential of QCDs to grow your endowment fund. Please reach out! We’d love to talk about a QCD strategy for 2024 and beyond. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 2023 was a busy year! We understand that charitable giving topics may not always be at the top of your reading list. That’s why we're here! The team at the community foundation is committed to keeping you up-to-date on what you need to know. Here’s a recap of five key developments last year that are most certainly worth keeping an eye on in 2024
A new year ushers in a fresh batch of resolutions and goals. It’s also a time when new questions pop onto the radar. That’s certainly the case even in these early days of 2024. Here are a few of the top questions we’re already hearing from our nonprofit partners, along with answers to help you navigate the year ahead.
Keep these five tips in mind as you consider your year-end giving:
This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. |