As federal tax reform bills make their way through the House and Senate, many donors are wondering how the proposed tax law revisions could affect their charitable giving in 2018 and beyond. While specific provisions are still evolving, a number of proposed changes could have a serious impact on philanthropy.
“From the details that have emerged so far, the current tax laws might provide donors with more generous benefits for giving than future tax laws,” says USC Assistant Vice President for Gift Planning John Yu. “For some donors, it may be advantageous to act now while the current laws are intact.”
USC’s gift-planning experts have identified six ways that the current tax proposals would impact charitable giving.
The House bill aims to simplify the tax code by reducing the number of tax brackets. The Senate bill would keep the current number of tax brackets but decrease the overall tax rates in each bracket, and reduce the highest marginal income tax rate from 39.6 to 38.5 percent. These changes will provide fewer tax benefits for donations, because tax savings from charitable gifts are a function of the tax rate in an individual’s tax bracket.
Modification and Potential Repeal of Estate Tax
Under both the House and Senate bills, the estate tax exclusion amount would be doubled. This would limit the number of estates that would have tax benefits from charitable gifts. Under the House Bill, the estate tax would be repealed after 2023, thus providing no tax benefits for charitable gifts from large estates.
Athletic Ticket-Purchasing Rights
Under both the House and Senate bills, gifts that provide rights to purchase priority-seating tickets to college athletic events would no longer be deductible. This would eliminate the tax benefits for gifts that provide priority ticket-purchasing rights.
Deductions for Cash Donations
The House and Senate bills would both increase the share of income that people can offset by deducting gifts of cash to charities. Currently, taxpayers can offset off up to 50 percent of their adjusted gross income by deducting cash donations to charities. The new limit would be 60 percent. This would provide greater tax benefits for gifts of cash.
Limits on Charitable Deductions
The House and Senate bills would both eliminate certain limits on the amount of charitable deductions for people above a certain income threshold. This would provide greater tax benefits for gifts to charities for people with higher incomes.
Corporate Income Taxes
Under both the House and Senate bills, the corporate income tax rate would be reduced from 35 to 20 percent. The House bill makes this change immediately; the Senate bill would delay this change until 2019. This would provide substantially fewer tax benefits for charitable gifts from corporations.
There is no way to predict if or when these proposed tax law revisions will be adopted, but many donors will want to take action in this calendar year to avoid the uncertainty created by the bills. “For example, our donors who have multiyear pledges may want to consider making early payments this year,” says Yu. “This way they will avoid changing tax rates decreasing the tax benefits of their charitable deduction in future years.”
Many donors who are unsure how to allocate their gift are considering donor advised funds, charitable lead trusts, charitable remainder trusts or gift annuities. These gift-planning vehicles allow them to make a gift in 2017—locking in the current tax benefits—with the option to determine at a future date how they want their gift allocated.
“Because everyone’s situation is different, this information should not be taken as specific legal, accounting or other professional advice,” says Yu. “Instead, we encourage all donors to review the implications of tax reform with the appropriate advisers when planning a charitable gift with tax or other financial implications.”
Potential donors can find more information on USC’s gift planning website or can review their charitable-giving options by contacting USC’s gift-planning experts at (213) 740-2682 or firstname.lastname@example.org.