It’s the best time of year to lock in your charitable tax deduction
By Ellen Israelson, VP of Philanthropic Services
Last year, many tax breaks disappeared due to the tax reform law, resulting in a larger tax bill for many. The list of now-extinct deductions includes personal exemptions, unlimited state and local tax deductions, and deductions for moving expenses, alimony, and unreimbursed employee expenses.
The good news, however, is that the charitable giving tax deduction survived the chopping block—and became even more generous. In fact, just a few strategic moves and working with a donor advised fund sponsor like the Jewish Communal Fund can make charitable giving can be more tax-friendly than before.
Follow these steps to maximize your deduction and give smarter:
- Give almost any type of asset. There are so many ways to give to charity. Most people are familiar with writing checks and making credit card contributions. But did you know that some charities (such as donor advised funds) accept unusual assets? For example, Jewish Communal Fund accepts (on a case-by-case basis) private stock, real property and other complex assets. By contributing low-basis complex assets, you avoid paying capital gains tax. Even a contribution of cash is a good way to give, since you can receive a tax deduction of up to 60 percent adjusted gross income if you itemize on your taxes.
- Donate appreciated long-term securities to maximize your tax savings. You can electronically transfer stock to a 501(c)3 public charity and receive an acknowledgement for a tax deduction. You may claim a fair market value deduction up to 30% of adjusted gross income, and you will not be subject to capital gains tax on the appreciated portion of the contribution. What’s more, if you transfer securities to a donor advised fund, once the stock is liquidated, you will be able to invest the charitable funds, and send grants out to multiple charities.
- Organize your giving and make it more tax-efficient. If you are involved with multiple charities, it’s probably time to consider using a vehicle to streamline your philanthropy. Stop wasting time on record-keeping and saving receipts—a donor advised fund at JCF can help organize your charitable giving. And before even considering establishing a private foundation, think about the expense and time required to create and manage the administration and oversight. That’s why more people are turning to donor advised funds (DAFs).
You may have read that DAFs are the fastest-growing charitable vehicle, and this is because they are the most flexible and efficient way to give. There are now 729,000 DAFs in the nation. Last year, $23 billion in grants were distributed from DAFs to charities in every sector, a distribution rate of 21%. Most DAFs can be opened with a minimum contribution of $5,000 and typical fund sizes range from $50,000 to $1 million. People have discovered that when they use a donor advised fund, they only need to give their accountant the one receipt they receive when they establish or replenish their fund. DAFs eliminate most of the record-keeping and administrative hassle associated with charitable giving.
- Group your contributions to a DAF. Making a significant contribution now to a DAF by “bunching” what you would have contributed to charities over the next two to three years can enable you to reach the threshold to itemize your tax return and qualify for a maximum tax deduction. Please consult with your accountant regarding your own personal situation.
How to Set Up and Use a DAF
There are three simple steps to opening a donor advised fund: 1) complete an application, 2) make a donation to set up the DAF, and 3) recommend grants to your favorite IRS-qualified charities.
When you make a contribution of cash or appreciated securities to open a DAF, you can take an immediate deduction. Some DAFs allow you to recommend investments for the assets in your fund, and any earnings will not be subject to tax. This creates the possibility that assets in DAF may grow tax-free.
Many DAFs can be managed on a secure website that provides access to account information and grant-making at any time. The DAF sponsor keeps track of all of the grants to charities and synagogues. Fundholders have the flexibility to set their own timetable for making grants to the IRS-qualified charities of their choosing. While grant-making activity is encouraged, most DAFs do not have an annual minimum distribution requirement. Therefore, the fund can last for several years before it would need to be replenished. And, with the changes in the tax laws and the loss of some deductions, this flexibility becomes quite useful.
All donor advised funds charge a small administrative fee for these services. If you want to really maximize the impact of your giving, choose a donor advised fund that reflects your values and uses this revenue to support charities aligned with your funding priorities. Jewish Communal Fund leverages the participation of their 8,000 Fundholders by donating a significant portion of our fees to UJA-Federation of NY’s annual campaign. Additionally, our endowment, The Special Gifts Fund, makes grants to projects and organizations in the NY Jewish community such as support for kosher food pantries and services for the elderly.
This year alone, Jewish Communal Fund made a gift of $2 million to the UJA-Federation of NY Annual Campaign. An additional $985,000 was granted from JCF’s endowment, the Special Gifts Fund, to Jewish charities for high-impact projects. When you use JCF for your charitable giving, you not only streamline your own giving and maximize your tax deductions, but also enable us to make these large Community Gifts to enhance the New York Jewish community.
Ellen Israelson is the VP of Philanthropic Services at Jewish Communal Fund, the largest Jewish donor advised fund in the country. For help deciding whether a donor advised fund is right for you, visit www.jcfny.org or contact the JCF donor relations team to request more information or to schedule a call.