Low interest rates and high taxes have traditionally generated increased interest in charitable giving, but things might be different this year. Taxpayers today are searching for new ways to achieve philanthropic goals while maximizing their deductions, but charitable giving with tax savings in mind has never been easy—and this is more true now than ever.
Tax pro Arthur Werner says that giving by cash or check is still perhaps the most common way to donate, but there are other techniques available to help tax clients reach their charitable goals. Knowing which ones to pass on is key. Werner covers the current state of tax-advantaged giving in his webinar for Eli Financial, “Revising and Expanding Charitable Planning Techniques.”
Charitable Giving Breaks Record—But May Fall in 2018
Totals vary depending on who is producing the statistics, but most industry watchers agree that charitable giving was up in 2017 and reached record levels.
Charity Navigator estimates that giving totaled $410 billion in 2017, in increase of 5.2 percent from 2016.
“For the third year in a row, total giving reached record levels,” the agency’s report summary states. “This increase and the overall size of charitable contributions is further testament to the integral role charities play in our society, a role which continues to grow.”
Online giving rose 12 percent in 2017, and nearly one-fifth of online donations were made on a mobile device, reports non-profit cloud supporter Blackbaud. And giving by corporations held steady at 5 percent, while giving by foundations rose slightly, NPEngage adds. Overall, giving by gross domestic product remains at around 2.1 percent.
Record giving may pause, some experts warn, thanks to the Tax Cuts and Jobs Act (TCJA). Right-wing economic consultants at the American Enterprise Institute predict that giving will drop by 4 percent in 2018 thanks to an increase in the number of taxpayers who claim standard deductions.
The hurdle: “Although the deduction for donations is unchanged, you’ll still need to itemize to claim it, and that’s a much higher bar with the nearly doubled standard deduction,” reports CNBC.
“Without itemized deductions, most people will lose all tax benefits associated with charitable giving,” said Kimberly Dula, a partner at the accounting firm Friedman LLP, in the CNBC article.
There are now two competing forces at work, notes CPA Journal—taxpayers can realize tax savings without making charitable contributions, while increased GDP and national financial factors typically correlate with increased giving, as does increased disposable income.
“Not-for-profit organizations and their advisors need to be prepared for … changes … to potentially have a negative impact on individual giving, and thereby the overall financial well-being of the entity,” CPA Journal adds. “The effect of decreased charitable giving could impact the economy in general.”
For tax pros, giving sound advice to clients comes down to knowing what strategies are on offer, explains Rowling & Associates. Remember that giving does not always mean cash. Charitable contributions can include donor-advised funds, stock or mutual fund donations, and tax-free donations from an IRA.
With the tax year now well into its second half, now it the time for revising charitable planning, says Werner. Clients who are not already planning for post-TCJA taxation realities will soon coming looking for financial planning tips.
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