So how does it work? People decide to give and then do it in the most advantageous way, taxwise? Or are they looking for a way to reduce their tax liability, and decide to give to charity rather than the gubmunt?
Your tax burden. :)
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You didn’t ask me but in my practice most clients are looking to reduce their liability through the donations. They’re looking at net cost after taxes.
An example of doing it the most advantageous way could be Gifting using a Charitable Remainder Trust. You place a highly appreciated asset that’s not earning much current income in the Trust. The trustee can sell the appreciated asset paying no tax on the gain. Trustee can then invest proceeds in higher earning income assets. You receive income from the trust the rest of your life and the charity receives the balance of the trust at your death. You get charitable donation deduction now not the later date when the trust is distributed to the charity.
Have to agree with the others....the charitable deduction is seen as absolutely vital for many nonprofits. While small donations add up....it's always large donors that really keep things going.
And when people are making $5k, $25k, $250k, or $25m donations...knowing that only 60% is coming from them...and 40% (for most all these folks marginal income) is coming from the govt....it's a huge incentive. In some states
...once accounting for state/local taxes, it could be 50%/50%.
My good friends wife is involved in a local theater....and it would be closed right now if not for a local business guy who was really into local theater, and donated $2m. I'm sure the tax write off was considered.
If your income is as low as you say, you won’t gain any tax benefits from charitable giving.
Doubt seriously Simon Skjodt would have given millions to IU for AH just to have her name on the building.
Besides the income tax savings the money won’t be in her estate therefore, no estate taxes owed on it.
Off topic....but what do you know about life insurance trusts?
Life insurance proceeds are not taxable. Could a very wealthy person buy a huge life insurance policy (say $50m)....with the proceeds of the policy funding a trust at their death....and then the trust beneficiaries get all of the $$ estate tax free?
Say buy a $50m whole life policy for $49.9m.
Don't know those tax laws. And maybe their are limits on insurance products?
Yes you could buy the policy in a trust. The proceeds would be out of the person’s estate and no estate taxes would be due nor income tax owed when the proceeds distributed to the beneficiaries.
The sticky part would be the money going into the trust to pay the premiums. Let’s say the premiums were $200,000 per year and there are two beneficiaries. The money going to the trust for the premiums is considered a gift. You can gift $14,000 per person per year. With two beneficiaries $28,000 would be free of gift tax. The remaining $172,000 would be subject to gift tax. The person making the excess $172,000 gift could reduce the their lifetime $5.49 million estate and gift tax exemption amount and pay no gift tax in the year of the gift or pay up to 39% gift tax on the $172,000. Once you use up the $5.49 million you would owe gift tax or estate tax at death. If you use the entire $5.49 million up during your lifetime your estate would owe estate tax on your remaining estate value at death. The insurance proceeds if set up properly in a insurance trust wouldn’t be subject to estate taxes.
Hope it makes some sense. Basically in 2017 the IRS allows you to have up to $5.49 million in assets with no estate taxes owed and you can gift $14,000 to as many individuals as you want each year without reducing that $5.49 lifetime exemption amount.
Charitable Lead Trusts are also a very valuable way to support nonprofits and pass along assets to heirs tax free. They are especially good tools in a low interest rate environment.
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Not necessarily so. Many states offer tax credits for certain charitable donations. Here in Arizona a married couple filing jointly can use up to $4,000 in charitable tax credits to reduce their tax liability.
Ok...so one can't personally buy a life insurance policy and have the trust be the beneficiary?
Yes they are. I am convinced if they take away Charitable Donation Deduction it will be devastating to charities. In the long run that very well might cost the Federal Government more than taxes they collect from taking away the deduction.
The buyer wouldn’t want to own the policy personally or it would be included in their estate. No way you want Life Insurance proceeds included in your estate if your estate is large enough to incur estate taxes. It’s really very easy to use a Life Insurance Trust to avoid the problem. The trust owns the policy. In my previous example with the $14,000 per person, if those two folks had kids they could be used to reduce the taxable gift too. One hitch that could occur in the Life Insurance Trust is that you have to notify each beneficiary of the $14,000 gift on their behalf that’s going to be used to pay the premium each year. They could demand the money. Of course if they do that they’d get the $14,000 one year and then dad would say screw your I am taking you off as trust beneficary.
My wife is a CPA and specializes in tax accounting and I've heard her say what I said about charitable giving deductions, but she's only practiced as a CPA in Hawaii, California and Ohio. Maybe rules in Arizona are different, or maybe I didn't really listen carefully - she accuses me of that now and then.
My wife is a CPA and specializes in tax accounting and I've heard her say what I said about charitable giving deductions, but she's only practiced as a CPA in Hawaii, California and Ohio. Maybe rules in Arizona are different, or maybe I didn't really listen carefully - she accuses me of that now and then.
In Indiana gives up to a $200 Credit for gifts to Indiana colleges.
Indiana also has this program which offers a substantial credit. https://www.in.gov/dor/4305.htm
Clients in our community can take advantage of the credit by contributing the Catholic School in our town.
If that enters into it it's definitely a bad financial decision because you're gonna spend a lot more money raising a kid that you would ever get back because of the tax break.
I would think if people couldn't claim charitable giving as a deduction a lot would cut back to the amount they would be giving. For example, if they were in the 25% tax bracket and gave $100 then to them it's really just $75 out of pocket so I'll bet a lot of people would cut back to at least $75 if they couldn't claim it.
My wife is a CPA and specializes in tax accounting and I've heard her say what I said about charitable giving deductions, but she's only practiced as a CPA in Hawaii, California and Ohio. Maybe rules in Arizona are different, or maybe I didn't really listen carefully - she accuses me of that now and then.
There’s a big difference between tax deductions and tax credits. Those credits are really valuable.
Even though they are not messing with the charitable giving deduction, directly....they certainly are messing with it indirectly.
By doubling the standard deduction ($12k to $24k for married couples)....a large number of households that did itemize deductions, no longer will. And without itemizing....there is $0 tax benefit to charitable gifts.
It won't impact the large donors I talked about above....but certainly will impact middle/upper-middle class filers.
This is the same reason Realtors and home builders are actively opposing the bill....While mortgage interest deduction isn't going away...it becomes irrelevant for all but the very highest income groups.
Er, well, tax credits are obviously more valuable. But that doesn't mean that deductions aren't "really valuable."
I don’t think you are too far off to be honest. It’s not really an apples to apples comparison to compare the charitable deduction to any child-related deductions or credits because the decision to have a child is multifaceted. On the other hand, charitable given is easier to plan out and while people do it without the tax benefit, many, many people plan their giving with taxes in mind.
As an overall concept we try and form our tax policy around what we value as a society. That’s why you see a lot of benefits around children, ownership and businesses. We can argue whether those are the right values to be supporting, but that’s my view of things.
New propsed brackets out....for you tax nerds to do a side by side comparison to what you are paying now.
Don't forget about the standard deduction doubling (and personal exemptions eliminated).
https://www.cnbc.com/2017/11/02/here-are-the-new-tax-brackets-in-the-gop-plan.html
Don't forget about the standard deduction doubling (and personal exemptions eliminated).
https://www.cnbc.com/2017/11/02/here-are-the-new-tax-brackets-in-the-gop-plan.html
If charities have substantial decreases in revenues monies they spend to help people in the safety net will shrink. Government programs will possibly have to step in with increased money for benefits.
You hit nail on head. I have middle class folks now who I know don’t make contributions because their itemized deductions don’t exceed the standard deduction. Those folks making that decision will increase substantially with a standard deduction doubling.
Perhaps. Although I'm not sure how much the effect would be, since so much of "charitable giving" has no real bearing on the social safety net. Simon Skodjt may have gotten a tax consideration for her gift, but I don't think the people in Seminary Park gained anything from it.
You have a point. I think the number might be surprise charities are spending on food, clothing, housing etc for homeless and poor.
Maybe a better idea is take away deductions for gifts to some charities without consideration to whether they’re republican, democrat, liberal or conservative?
My gut feeling is the big mega donors' money goes to big projects like museums and libraries and basketball arenas, while small donations by individuals go more toward church programs and United Way type organizations that serve people directly.
As somebody who has served on the boards of a number of the latter kinds of charitable organizations, I can say with 100% certainty from first-hand knowledge that the feeling in your gut belongs a bit further down in your digestive tract.
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Guess it depends upon what you classify as a mega donor. $50k-$100k? Or $5m?
Assembly Hall is an extreme example from an extremely wealthy family.
So looking through the tax bil details...so far looks a lot better than what had been rumored. I think it's likely that the Senate ends up moderating it a bit more.
Still going to be a lot of bumps to go over to actually get this passed. I think they are likely to lose a good amount of votes from states getting slammed by the SALT changes.
Still going to be a lot of bumps to go over to actually get this passed. I think they are likely to lose a good amount of votes from states getting slammed by the SALT changes.
Well, in defense of the SALT changes, those are only going to impact taxpayers who pay more than $10K in state/local taxes. That can still cause a problem for Republicans in high tax states, of course. But I wonder how much crowing we'll hear from Dems on it -- given that their stock line will be that it's punishing the middle class for a giveaway to rich people.
That said, I'm sure the final bill (if they get to one) won't look exactly like this.
It's going to be a $1.5T increase in the deficit...it can't be anymore than that and pass under reconciliation. My guess is this House bill is slightly above that....but they'll have to get under that number at the end.
Still a long way to go...Senate will come out with theirs next week. Then they'll mush them together.
Little clarity....the $10k limit is just for property tax deduction. They are fully eliminating state/local income tax deduction.
It's rather shady....as many large red states (I'm looking at you TX and FL) have no income tax....but very high property tax.
States like CA have low (capped) property tax....but high income tax.
Keeping one while ditching the other is shady. I feel for people who are literally going to be double taxed in those states.
None of this matters to middle class and lower....with a $24k standard deduction they are coming out better off.
Thanks, I hadn't seen that delineated.
That isn't going to fly. If it did, we'd see a flurry of tax reforms in state legislatures favoring higher property taxes and lower income taxes -- which would reduce federal tax receipts.
I don't have a problem with limiting deductions for SALT. But it should be agnostic about the form of the tax.
Yes, I agree. Why not just cap it at $x regardless of the form of the tax?
Well, I know why
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