Year-End Charitable Giving Planning Alert


Whether you are philanthropically inclined or just looking to reduce your income tax bill, making a 2017 charitable contribution may prove beneficial*. Proposed federal tax law changes that will likely affect future giving include lower income tax rates, repeal of the alternative minimum tax (AMT) and the elimination of certain itemized deductions and Pease limitation. Even though the charitable deduction will not be eliminated, a nearly doubled standard deduction will reduce the number of taxpayers who choose to itemize. Moreover, the proposed requirement to pick securities on a “first in, first out (FIFO)” basis will impact an investor’s ability to donate the most appreciated lots.

So, what should you give away? Contributions of appreciated publicly traded securities held for more than one year provide the greatest tax benefit. First, you receive an income tax deduction for the fair market value of the security, limited to 30% of your adjusted gross income (AGI). Any excess can be carried over for up to five years. Second, you avoid the tax on the built-in gain. The lower the basis, the greater the tax benefit on the unrealized gain. Finally, if your portfolio experienced significant appreciation in the current bull market and a rebalancing is desired, charitable giving can reduce the resulting tax bill.

If you already reached age 70 ½, consider a Qualified Charitable Distribution of up to $100,000 from your IRA to a public charity. A QCD counts towards your 2017 required minimum distribution without including the transferred amount in your federal AGI. You can also make a cash gift, which is currently deductible up to 50% of AGI (or 60% starting in 2018 if proposed legislation passes). Someone with an AGI of $500,000 who makes a charitable gift would likely receive a greater benefit in 2017 at a 39.6% marginal rate compared to the proposed 35% rate in 2018. Similarly, a gift this year may benefit a taxpayer who is subject to the AMT at 28% if future income consisting solely of qualified dividends and capital gains would be taxed at 20%. Finally, if property other than cash or publicly traded securities is contributed, don’t forget about I.R.S. substantiation requirements.

Speak with your tax advisor to determine the optimal charitable gift based on your individual tax situation and projected future tax exposure. The I.R.S. Exempt Organizations Select Check online tool can confirm whether the recipient charity is eligible to receive a tax-deductible contribution. Lastly, consider the effective date or even potential retroactive application of any new law before making your decision.

DISCLAIMER: This memorandum was produced by Summit Financial Resources, Inc., which provides financial planning services. Securities and investment advisory services are offered through Summit Equities, Inc., Member FINRA/SIPC. 4 Campus Drive, Parsippany, New Jersey 07054. Phone: 973-285-3600, Fax: 973-285-3666. This memorandum is for your information and guidance and is not intended as legal or tax advice. Legal and/or tax counsel should be consulted before any action is taken.
*Analysis assumes gift to public charity after phaseout of other itemized deductions such that a charitable contribution will provide a benefit at the highest marginal tax bracket.
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