What will changes in the tax law mean to you as you develop your charitable giving strategies for 2019?
Author, Phil Tobin, co-founder/President, iGiftFund
With the tax changes that went into effect in 2006, it’s likely that you will again elect not to itemize this year. Rather, you will opt to claim the new higher standard deduction for 2019: ($12,200 for single filers and $24,400 for married filing jointly).
With that in mind, here are several strategies that will help you to minimize taxes, including several that involve donor advised funds (DAFs).*
1. Contributions of appreciated, long term securities to a DAF avoid capital gains tax
By contributing appreciated, long term securities (stocks, property, etc.) you will enjoy an immediate and maximum income tax benefit and avoid capital gains tax on appreciated values. In addition, your fund will avoid estate taxes. Assets can grow tax free and contributions may reduce alternative minimum tax (AMT), if you are subject to AMT.
Tip 1: On gifts of appreciated, closely-held “S-corp shares,” there are creative ways to structure the gift so as to reduce taxes on the gain (it’s called the unrelated business income tax (UBIT) liability).
2. Execute a qualified charitable distribution (QCD)
Due to a change in the tax law, if you are at least 70½ years old, you (and a qualified spouse) are able now to direct distributions from your traditional IRA to eligible charitable organizations.
Amounts distributed count towards your Required Minimum Distribution (RMD). A QCD has no effect on your taxable income. You can still take advantage of the higher standard deduction and avoid taxes on your RMD. It’s a win-win-win strategy that works. If you aren’t yet age 70½, consider positioning your retirement assets to take advantage of these rules once reaching age 70½.
One caveat: QCDs cannot be made to DAFs, private foundations or supporting organizations.
* We are not tax experts…you are advised to work with your professional advisors on how the new tax laws will affect you.
Tip 2: TiGiftFund offers creative alternative strategies that are eligible to receive QCDs. These include:
- Designated Funds – Where you specify the charity or charities up front. iGiftFund will make annual distributions to your chosen charities in accordance with your wishes. You can use this popular strategy for any type of charitable contribution, such as supporting your church, establishing a scholarship program at your high school, or endowing a charitable organization or charitable event in your
- Field-of-Interest Funds – Where you specify certain charitable interests. These can include broad categories such as arts and culture, historic preservation, the environment, health, and iGiftFund selects the charity that meets your intended field-of-interest.
- Unrestricted Funds – Where you leave the granting decision to iGiftFund’s Board of Directors to meet the needs of your community as they change over
Any of these three funding strategies can be endowed, meaning that distributions will be made to your favorite charities, in your name, virtually forever.
Tip 3: You can always take a normal distribution from your retirement plan, incur the tax liability, contribute the proceeds to a DAF, and mostly offset the federal liability tax with the qualified deduction. This strategy gives you the flexibility of a DAF, but the distribution may affect other taxes, such as your tax on Social Security income.
3. Take advantage of the increase in AGI limits on contribution of cash
The new tax law increases the AGI limit on contributions you make in cash from 50 percent of AGI to 60 percent. Again, the donor advised fund acts as your tax-smart philanthropic reservoir to offset the effect of windfall taxable events or fluctuating income.
4. Bunch itemized deductions into alternate years to meet increased threshold for itemization
A smart strategy for taxpayers whose qualified deductions will not be sufficient to exceed the new standard deductions thresholds is called “bunching.” Under this creative strategy, you double-up and aggregate eligible deductions, including charitable giving, into a single This increases your likelihood in that year of being able to itemize deductions, thus exceeding the new standard deduction thresholds. In subsequent years, you can elect to take the higher standard deductions.
Tip 4: Your DAF becomes your family’s “philanthropic reservoir, grants from which can provide steady and predictable support to your favorite charities over alternate years in a tax efficient manner. Charities appreciate the consistency this strategy affords.
About the Author
Phil Tobin created iGiftFund as a national, independent donor advised fund (DAF) with the goal of creating a unique, personalized donor experience. He serves as its Chairmen/President.
Among the most experienced DAF experts in the country, Phil pioneered one of the earliest DAFs when he served in the 1980s as CFO of The Cleveland Foundation. Subsequent to that, he co-founded a donor advised fund which, prior to his leaving in 2016, had become the 16th largest charity in the country. Phil serves as iGiftFund’s Chairman/President.
iGiftFund is an IRS-recognized, independent, public charity that sponsors donor advised funds. It’s mission is to inspire donors to create, preserve and distribute their philanthropic legacy and to make a truly remarkable impact on the lives of others, including the donor.
With the hallmarks of simplicity, accessibility and low administrative fees, iGiftFund sets the standard of excellence in the industry and distinguishes itself from the large, national commercial and independent DAF sponsors. Based in Hudson, Ohio, iGiftFund works nationally with donors and with financial advisors on their familiar investment platform, in open architecture. iGiftFund’s administrative fees are the most competitive in the industry, starting at just 45 basis points on the first $500,000 tier.