Archive for category: Professional Advisors

Keeping up with an ever-evolving landscape of tax legislation can be a full-time job! Many attorneys, CPAs, and financial advisors regularly ask the community foundation to provide a refresher course on the potential tax changes on the horizon in 2025, especially those that might impact charitable planning techniques. 

Here’s a quick rundown of three things you need to know:

–Sunsetting provisions of the Tax Cuts and Jobs Act of 2017. The TCJA’s scheduled expiration at the end of 2025 will revert key tax policies to pre-2017 levels, potentially affecting charitable giving incentives. For example, the top individual tax rate is scheduled for a bump from 37% to 39.6%, potentially increasing the benefits of charitable tax deductions for your high-income clients. At the same time, the limit for cash donations to public charities is slated to drop from 60% of AGI to 50%, reducing the deduction for some of your clients. Finally, the estate tax exemption is scheduled to drop to approximately $7 million per individual. Because the exemption would nearly be cut in half, and therefore more estates would be subject to tax, a larger subset of your clients could benefit from charitable bequests to avoid estate tax. All of this assumes, of course, that intervening legislation won’t prevent the sunset. 

–Potential expansion of charitable deduction. Proposals like the Charitable Act aim to introduce a universal deduction for non-itemizers, broadening tax incentives for your clients across income levels. The bill is still popular among industry leaders and appears to have maintained momentum since it was introduced. 

–Consequences remain to be seen. Above all, the 2025 “cliff” may trigger the first major tax code rewrite in decades, which in turn surely would have a ripple effect in many areas of your clients’ lives, including within the charities your clients support. Post-TCJA, for example, charitable giving dropped by as much as $20 billion, according to one study, in the wake of reduced tax benefits. 

The team at the community foundation stays on top of legal developments at the intersection of tax policy and charitable giving. We keep our fingers on the pulse of potential implications for you, your clients, and the charities they support, and we are here to help you navigate the changes.

As attorneys, CPAs, and financial advisors, you are well aware that you have clients’ attention when tax season rolls around. This makes it a great time to cover tax planning strategies for the current year and beyond. To help incorporate charitable giving topics into your tax season client conversations, we’ve put together tips to address three scenarios where the community foundation can assist your efforts. 

Evaluate QCDs sooner rather than later. 

If: Your client missed the 2024 deadline for a Qualified Charitable Distribution. 

Then: Make sure the client took an RMD for 2024 (if required to do so). Start planning now for 2025 QCDs, paying very close attention to the required process. QCDs are an excellent tool for your clients who’ve reached the age of 70 ½ to give to a designated, field-of-interest, or unrestricted fund (donor-advised funds are not eligible), but if the client waits until the last minute at year-end, there might not be time for the transaction to be completed by December 31 as required. Plus, QCDs executed early in the year can help avoid negative effects of the “first-dollars-out rule” so that the QCD can count towards your client’s 2025 RMD.

Watch for charitable giving opportunities in business succession planning.

If: Your client is beginning to consider exit strategies for a closely-held business.

Then: Reach out to the community foundation right away. Gifts of closely-held stock to a charitable fund can be a very useful component of a business succession plan. That’s because a client can gift shares of the business, which in turn means that no capital gains tax will apply to the gifted portion when the business eventually sells. The proceeds of the gifted shares flow into the fund to be used for your client’s charitable priorities. Keep in mind that timing is crucial; if a deal is in the works at the time the shares are transferred to the charitable fund, the charitable deduction is in jeopardy. 

Consider gifts of appreciated stock early in the year.

If: Your client’s stock portfolio made big gains last year.

Then: Evaluate whether it might be wise to make gifts of appreciated stock to a fund at the community foundation early in the year, rather than waiting until the end of the year. If certain stock positions are high right now, it’s worth considering whether a gift in the very near future could be a good move to maximize charitable dollars. As a reminder, gifts of stock to a public charity are eligible for a charitable deduction in the amount of the stock’s fair market value at the time of transfer. And, when the stock is sold so that its proceeds can be deployed to further your client’s charitable goals, no capital gains tax will apply.

Our goal is to be your go-to sounding board for any client situation where charitable giving is an option. Please reach out anytime you and a client are discussing philanthropy. In most cases, the community foundation can help. Even if our tools are not a fit, we will point you in the right direction! 

Planning and budgeting our annual expenditures is a common activity, but how many of us actually plan and budget our charitable giving?

The new year is a great time for professional advisors to urge their clients to assess (or reassess) charitable giving with the goal of supporting favorite charities and also remaining fiscally cautious. With intentionality and a little planning, this strategy also helps the nonprofit organizations.

Benefits of a year-long giving strategy include:

• Helping nonprofit organizations meet their budgets throughout the year, which can save staff from concern about meeting constituents’ ongoing needs.
• Avoiding the year-end scramble and making your tax-deductible gift available this year instead of next (for example, those making a QCD from an IRA directly to an unrestricted or field-of-interest fund at TCF would be providing fiscal benefits to those organizations in this calendar year).
• Increasing predictability of cash flow (your own and the nonprofits) and therefore being proactive, not reactive, with your support.
• Providing time to include children and grandchildren as a learning experience.
• Exploring options for more complex gifts, such as closely-held business interests or charitable remainder trusts, that might provide tax benefits as well as meet charitable goals (rather than waiting until the last minute!).

Here’s a sample evaluation process to help clients assess their charitable budget:

1. Review all your charitable donations from the last three years and compile totals for each organization. (TCF fundholders can check this information through their donor portal.)
2. Then, think about these questions. The answers could help determine whether to continue your support at historic levels or consider putting your donation on hold to revisit at another time.

• Which charities are the most important to you?
• Are you personally involved (serving on the board of directors or a regular volunteer)? You may wish to continue your historic lel
• Are there any organizations on your list that you supported primarily because the organization was raising money for a capital campaign, or because you were helping out a friend who is involved with that organization?
• Are you comfortable with what you know about the organization, its leadership and its mission and vision? Are dollars being deployed towards programs in a way you understand and support?
• Are there any new organizations you’re interested in supporting?

2. Add up your total giving over the last three years and then divide it by three to get your average. Is that number doable this year? If not, reduce it to a level that fits within your financial situation. Or, if you expect your income and assets to increase this year, consider taking your charitable giving budget up a notch.
3. Set a target for the total amount of support you wish to provide for each organization and the timing of that gift.
4. Keep in mind that TCF can help with the discovery and discernment process as well as provide insight into how your gift might help the organization. (For example, organizations may be able to use your gift to leverage even more donations as a match or challenge during April’s Great Community Give.)

Don’t forget to review our Giving Back Guide, which includes mission, history and impact information of 65 local organizations!

Many eyes are on the election aftermath seeking clues about what might happen to the tax laws. Of particular interest is the much-analyzed sunset of the higher estate tax exemption, scheduled for the end of 2025 absent intervening legislation. “Absent intervening legislation” is the key, of course. The November 2024 elections will not immediately change estate tax laws, and it’s a long road from here to there.

For starters, the new Congress will not be sworn in until January 2025, and only after the session begins will Congress initiate the budget reconciliation process which is ultimately required to make tax law changes. The budget reconciliation process typically starts with the President submitting a budget to Congress. Then, both chambers of Congress pass budget resolutions with reconciliation instructions. Then, committees draft legislation to meet the budget targets, and the budget committees consolidate the bills into a single omnibus bill. Then, each chamber votes on its respective omnibus bill.

What all of this means is that the status of the estate tax exemption is still very much up in the air. And this means that financial, tax, and estate planning is going to be difficult for many more months. With the estate tax exemption set to drop from $13.61 million per person in 2024 to approximately $7 million per individual on January 1, 2026, a lot is at stake. Should a high-net worth taxpayer start making aggressive gifts now to family members and a donor-advised or other type of fund at the community foundation, anticipating that the sunset will indeed occur? Or take a “wait and see” approach?

Planning is further complicated by the dangers of waiting until the last minute. Not only is it tough to pull off a complex estate plan or business succession plan quickly, but it’s also dicey because the IRS likely will be on the lookout for situations to invoke the step transaction and reciprocal trust doctrines.

So what can you do? First and foremost, if you are working with charitably-inclined families who would be impacted by the estate tax exemption sunset, please reach out to the community foundation right away to start looking at options. And if you aren’t sure whether a client is charitably inclined, you absolutely must ask them. It’s always important to talk about charitable giving, and especially right now when the stakes are so high.

We look forward to many conversations with you and your clients as estate tax developments unfold!

Many of your philanthropy-minded clients enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it.

Here’s how this might go.

Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at the community foundation said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?”

You: “Ummmm ….”

And no one could blame you for that response! The rules behind this are obscure and confusing, even by IRS standards.

Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible.

Big picture, the IRS is likely striving for administrative simplicity to enforce the longstanding tax principle that a taxpayer cannot deduct value given to a charity that is effectively transferred back to the taxpayer. At a typical event, of course, your client receives food, drinks, entertainment, and even t-shirts and other fun swag. The IRS knows this!

The IRS’s commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax deductible and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fund holders. In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket.

Ever since the notice was released, it’s been on the radar of tax professionals, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments.

There is good news, though!

We understand the rules inside and out, and we are here to help your clients stay compliant and achieve their charitable goals. In situations like this, we help your clients structure gifts from their donor-advised funds to support general event sponsorships if the client declines all benefits, or even recommend that the client pay the ticket portion from their personal funds and use donor-advised funds to give separate and additional amounts for general support unrelated to the event specifically. We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not receiving any benefit in return.