Tax Benefits of Philanthropy
The Tax Benefits of Philanthropy This weekend we are on the cusp of the deadline for filing our taxes. At the end of 2017, after the passage of the new tax plan, amongst the furious activity of people and their professional advisors to understand the changes coming, some Community Foundation donors made year-end gifts to kick up their deductions. The timing was good as the stock market was reaching historic highs. The charitable gift benefits can now be seen on 1040 forms as donors realize the tax savings gained by the timing of their gifting. I like to think about the ancillary benefit of charitable giving donors receive through the charitable gift deduction. Though not the primary reason people give, and distinctly different from the charitable benefit to society, the financial benefit through the tax code is a wonderful way to encourage and support the altruistic behavior of giving. The tax benefits include:
- A charitable gift deduction for donors who itemize.
- Avoidance of capital gains taxes for donors who gift appreciated assets.
- A partial calculated charitable gift deduction for donors who set up “income” instruments like charitable remainder trusts and charitable gift annuities.
- Use of a charitable gift deduction that exceeded past years allowance. For donors who make large gifts, the deduction may be used over several years of tax filings.
- Recapture of taxes paid during a property sale. One strategy we use is a “zero tax sale”, where a donor gifts a part of a property prior to sale. We calculate how much to gift to exactly offset capital gains taxes. At the time of the sale the taxes are paid, but when the tax return is filed the taxes are recaptured through the deduction.