Nonprofits Can Boost Fundraising by Suggesting Tax Planning Strategies to Donors
A recent Blackbaud Institute charitable giving report confirmed nationally what we have seen in the Baltimore/Washington, DC area market: charitable giving increased slightly, by 1.5%, from 2017 to 2018.
This increase occurred not just among the super wealthy, but also among a larger population of high net worth charitably inclined individuals and families.
This uptick in charitable giving is, of course, excellent news for nonprofits. A nonprofit can benefit even more, however, when its staff is able to educate potential donors about several tax benefits of charitable giving – beyond a simple cash donation.
To understand the big picture, let’s first step back and take a look at the reason behind the increase in giving.
Two Key Reasons for the Uptick in Charitable Giving
Although the recent increase in charitable giving is slightly less than the prior two years, it is still consistent with historical averages. There are two primary factors that attributed to this change:
- The 2017 Tax Cuts and Jobs Act doubled the standard deduction, making it harder for individuals to itemize, which can lead to less of an incentive to donate
- Online giving is still increasing, making it easier for donors to interact and donate to charities
What’s Going On With Individual Income Taxes?
Let’s review a few of the changes made to individual income taxes beginning with the filing of 2018 tax returns and going forward, and see how they can have a positive impact on your nonprofit’s fundraising.
- In 2018, the highest individual rates decreased from 39.6% to 37%
- Personal exemptions have been suspended from 2018-2025
- The standard deduction has been increased to $12,000 for single filers and $24,000 for married couples filing jointly
- For itemized deductions:
- The state and local tax deduction has been limited to $10,000 per return
- Miscellaneous itemized deductions have been suspended from 2018-2025
- The cash charitable deduction limit increased from 50% of adjusted gross income (AGI) to 60% of AGI
While the decrease in federal income tax rates has reduced the tax burden for some, there are a few high income taxpayers who could end up with a larger tax bill without careful planning.
Two Win-Win Tax Planning Strategies for Nonprofits and Donors
Outright gifts to charities will obviously generate a greater tax benefit and therefore be more valuable to high income taxpayers. Even so, there is a limit to any donor’s generosity in any one year.
But what if there were gifting strategies that allowed the taxpayer to make non-cash donations of income producing assets without paying additional tax on the accumulated income?
Gifting appreciated stock and qualified charitable distributions (QCDs) are two win-win strategies for nonprofits and donors alike.
Both provide immediate income tax savings to donors, as well as a source of current and future cash flow to the nonprofit. We have found that our clients appreciate this flexibility, and that charities recognize the benefit they are receiving.
Gifting Appreciated Stock
When you donate appreciated stock you can generally take a charitable deduction for the fair market value of that stock without having to pay any capital gains on the appreciated value. This allows you to greatly increase your charitable deductions than had you donated the same cost basis in cash.
You also have the option of making a stock donation to your own donor-advised fund. Once a contribution is made to this fund you will immediately be able to recognize a charitable donation and then, at your own direction and convenience, make donations to charities you are passionate about. Our clients often find they have more flexibility and control over their donations while enjoying less paperwork.
Qualified Charitable Distributions (QCDs)
A QCD is a transfer of funds out of an IRA account to a qualified charity. Similar to gifting appreciated stock, the donor will receive a deduction for the full value of the donation without having to recognize any income that has accumulated on the proceeds.
There are, however, some special requirements and limitations of QCDs, including:
- You must be 70 1/2 years or older
- A QCD cannot exceed $100,000 for any one taxpayer
- A QCD is limited to the amount that would otherwise be treated as ordinary income
Making a QCD can help in multiple ways, including satisfying your required minimum distributions (RMDs) and helping to keep your income low. Also, you do not need to itemize in order to take a QCD, so you can take full advantage of the increased standard deduction.
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Published on June 07, 2019