This is the second article in a series discussing various tax planning opportunities that should be considered in the wake of the recent elections. The prior article discussed postponing sales until 2017.
There are at least three aspects of President Elect Trump’s tax plan that favor accelerating charitable gifts to 2016.
First, income rates will likely go down in 2017. If you can make a gift in 2016 and reduce your taxes by 40% of the amount you give, this is likely a bigger savings than you will receive in future years.
Second, Trump proposes to cap itemized deductions at $200,000 per year. This limitation will significantly reduce the benefit of making charitable gifts for certain taxpayers.
Third, Trump proposes to impose a capital gains tax on transfers of appreciated property to a private foundation. It is unclear whether he intends for this rule to apply to lifetime gifts or just to testamentary gifts. However, if this tax only applies to testamentary gifts, it could be easily avoided by making a deathbed gift.
Today, I met with a couple who are considering making a substantial charitable gift sometime between now and the first quarter of 2018. These clients expect to receive substantial income in 2017. I called my client’s CPA and she ran the numbers based on a hypothetical 2017 tax system consistent with Trump’s proposed plan. The conclusion is that the clients will get significantly more tax savings by making a gift in 2016. The gift will consist of some cash and appreciated securities given to a private foundation and some cash given to a donor advised fund. The private foundation and the donor advised fund will allow my clients to make the gift now and pick the actual charities that will receive the funds later. Giving part of the gift to a donor advised fund will allow the clients to save more taxes as compared to giving everything to the private foundation.