Among the big changes in the 2017 Tax Cuts and Jobs Act (TCJA) were new limits on standard and itemized deductions. These limits and restrictions created new hurdles when planning deductions with tax advantages in mind. An exception was charitable deduction, which remains an option for high-income individuals looking to create a donation for the charity of their choice.
When making a charitable donation, two avenues to consider are donor-advised funds (DAFs) and private foundations (PFs).
Public charities establish DAFs as a philanthropic vehicle; the donor can allow the donation to potentially grow over time and advise on grants from the fund (assuming compliance approval), all while having an immediate tax benefit for that initial contribution. Private foundations offer total control in terms of the grants you’ve made and their distribution.
In contrast, a private foundation tends to be larger in size (sometimes in the millions of dollars) in comparison to DAFs (which can be set up with as little as $5,000) and generally represent a larger and less-flexible method of charitable giving.
There are different tax considerations to keep in mind. Your limit in contributing to a private foundation is 30% of your adjusted gross income (AGI) in the year you make that donation. On the other hand, the same limit for a DAF is up to 60% of your AGI.
What about long-term appreciated marketable securities? Your limit to a private foundation is 20% of AGI for the year of the donation. For a DAF, it’s 30% of AGI.
There are advantages to both private foundations and donor-advised funds, both in terms of tax deductions and the control that you may exercise over the use of the funds.
However, you should also be aware that the I.R.S. is on the lookout for those who may use the flexibility of donor-advised funds to create improper distributions, which may, for instance, directly benefit a donor’s family. For this reason, among others, it’s best to have several conversations with a tax and financial professional, who can both assist you in the creation of any such entity as well as help you manage your charitable giving. Our team of trusted financial advisors in Charlotte, NC would be happy to discuss details further with you today.
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Financially, many of us associate the spring with taxes – but we should also associate December with important IRA deadlines. This year, like 2020, will see a few changes and distinctions. December 31, 2021, is the deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.
There’s an old Wall Street maxim that says, “markets climb a wall of worry.” And these days, there’s plenty to worry about with the trend in long-term interest rates and bonds.
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