The Trump administration has announced a tax plan for Congressional consideration. The plan features reduction of personal and corporate income tax rates including taxes on pass-through business entities such as S corporations, compression of the number of tax brackets from seven to three and an increase in the standard deduction. Personal income tax rates are reduced to 10%, 25%, and 35% brackets. This proposal eliminates the deduction for state and local income taxes but the income tax charitable deduction remains.
Impact on Life Income Gifts
The doubling of the standard deduction to $25,400 for married filers will reduce the number of taxpayers who itemize and therefore benefit from the income tax charitable deduction. The reduction in the number of those who benefit from the income tax charitable deduction would still leave many creative ways to make gifts to charity. Life income gifts such as charitable gift annuities and charitable remainder trusts would still be attractive ways to make gifts. Assuming life income gifts still offer capital gain tax avoidance/deferral and favorable taxation of payments, there is life left in these vehicles. These life income plans can convert idle and/or illiquid assets into a substantial income stream and benefit charity at the same time, making them appealing even to donors who can’t use the income tax charitable deduction.
Legacy Giving Still a Good Choice
Bequests and beneficiary designations are attractive ways for ordinary donors to make extraordinary gifts. Taxes have very little impact on these important gifts. Even under current tax law, the Tax Policy Center estimates there will be only about 11,000 estate tax returns filed for those dying in 2017, of which 5,200 will be taxable. Very few estates enjoy tax benefits from the charitable gifts they make. Nonetheless, Giving USA reports charitable bequests totaling $31.76 billion in 2015, an increase of 2.1 percent over 2014. Even though most estates are exempt from filing an estate tax return, much less paying estate taxes, Americans continue to give generously from their estates. Estate gifts are often the largest gift these donors will ever make, even though their heirs and estates enjoy no tax incentives for these gifts. Bequest donors like the anonymity and flexibility of estate giving as well as the joy of knowing they can make a material difference to the causes that are dear to them.
Predicting the Future
Yogi Berra, said, “It's tough to make predictions, especially about the future.” Truer words were never spoken when it comes to the future of American tax reform in 2017. While the future of taxes in the U.S. is murky, even without tax incentives for charitable giving students will still need education, diseases will still need cures, we will still seek out the arts to uplift and enrich our lives, and the needy will still require our help. The smarter, easier ways to give to charity will still hold appeal for many.
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