Charitable giving tools available for taxpayers; due to expire

The Tax Cuts and Jobs Act of 2017 will expire at the end of this year unless Congress acts. Some of those expiring provisions affect charitable gift planning.

What charitable planning techniques can advisors recommend to their clients this year? Lawrence Pon, Certified Financial Planner and principal with Pon & Associates, gave some advice in a recent webinar held by the Financial Planning Association.

Because the TCJA doubled the standard deduction for income tax filers, most people are not itemizing deductions on their tax returns, Pon said. “For charity, most people aren’t giving in general because there’s not much of a tax benefit,” he said.

But clients who want to save money on their taxes still have some tools they can use, Pon said.

Clients can consider naming a charity as a beneficiary of their retirement accounts.

“My favorite planning technique is the qualified charitable distribution,” he said. “It’s permanent in the tax law. Even with the changes in required minimum distribution ages under the SECURE Act, the QCD age did not change. It’s still age 70 ½.”

The QCD allows a distribution directly from an IRA by an IRA trustee to a qualified charity. Taxpayers can start using QCDs at age 70 ½. If the taxpayer is age 73 or older, the QCD fulfills their RMD requirement.

QCS distributions are not included in taxable income. Pon said the advantages to taxpayers include lowering the adjusted gross income, which can help taxpayers avoid or reduce their Income-related monthly adjustment amount on Medicare Part B and Part D premium.

Taxpayers also can use a charitable gift annuity, a contract between a charity and a donor in which the charity agrees to pay an annuity to the individual donor in return for an amount transferred by the individual to the charity. The taxpayer receives a charitable contribution deduction up front that is equal to the charity’s calculated actuarial remainder interest.

If the TCJA is not renewed, it’s possible that the standard deduction could be reduced, Pon said. He predicted that charitable giving could be on the rise if clients realize they could get a tax deduction for doing so.

Bipartisan legislation proposed in Congress could also spur charitable giving for tax purposes. The Charitable Act (HR 3435/S 588), would restore the charitable deduction for those who do not itemize. The bill would allow taxpayers to deduct up to one-third of the standard deduction in charitable gifts annually.

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