How tax changes may affect charitable planning in 2017

A summary of tax proposals being discussed in the coming year

With President-Elect Donald Trump preparing to enter the White House, and with Republican majorities in both houses of Congress, we can expect a robust discussion regarding changes to the Internal Revenue Code (a.k.a. taxes) in the year ahead. Many of the details being discussed would affect the tax benefits currently available for charitable giving. I’ve summarized some of the tax proposals – and how they might affect philanthropic planning – here.

1.  Mr. Trump’s Tax Plan

As a presidential candidate, Mr. Trump set-forth a plan that would limit a taxpayer’s total itemized deductions (including the charitable deduction) to $100,000 for an individual, $200,000 for married couples. As a result, taxpayers with significant deductions for mortgage interest and state income taxes, for example, may not get a chance to claim deductions for charitable giving.

Many more taxpayers are likely to be affected by a second prong of the Trump plan, which would increase the standard deduction from $6,300 to $15,000 for individuals, and from $12,600 to $30,000 for married couples. If this change takes effect, many folks who currently itemize their deductions would opt for taking a standard deduction instead; because they would no longer itemize deductions, they would not receive any tax benefit for charitable gifts.

Finally, Mr. Trump has proposed a change in federal income tax rates. This is important for charitable giving because, when a taxpayer claims an income tax deduction, she is reducing her tax burden at her highest marginal tax rate. For example, in theory, if a taxpayer currently has a top marginal tax rate of 39.6% and she donates $1,000, she is saving taxes in an amount of $396 ($1,000 x 39.6%). If her top rate goes down to 33%, as provided by Mr. Trump’s plan, her tax savings for that same gift are reduced to $330.

2.  Paul Ryan’s Tax Plan

In June 2016, House Speaker Paul Ryan endorsed a tax plan that would also reduce the highest federal tax rate to 33%. Similar to Mr. Trump’s plan, it would increase the standard deduction, though not as much, to $12,000 for single individuals and $24,000 for married couples. While the “Ryan Plan” eliminates most deductions altogether, it saves the charitable deduction (as well as the mortgage interest deduction) and does not cap all deductions as Mr. Trump’s plan does.

3.  The Federal Estate Tax

The headlines of 2017 are also very likely to mention the estate tax. The plans of both Mr. Trump and Mr. Ryan would eliminate the estate tax entirely. While there may be other changes that would make this a less-sunny picture for wealthy tax-payers eliminating the estate tax would likely reduce the tax benefits of charitable gifts made through estate plans.

Talk to your professional advisors!

To address whatever tax changes might come to pass, we highly recommend that you contact your financial, accounting and legal advisors.  If you or your advisors have any questions about how these changes might affect charitable decision-making, we are here to help!  Please contact a member of our team.

TAGS: Tax Considerations tax reform tax tips

About the author

Jeremy Arkin

With more than 15 years of experience in gift planning and development, Jeremy helps alumni find ways to support Duke that complement their larger personal and financial goals. He understands the ins and outs of giving techniques that involve tax, retirement and estate planning. He also develops strategies for donating complex assets such as real estate and private business interests. When he’s not at work, Jeremy attempts to channel Ron Carter and Ray Brown while playing his double bass.