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Jack Owen’s Tax-Exempt Alert July 2018

I presented the following legislative update to the Southwestern Planned Giving Council on Tuesday July 10, 2018:

1. The Pennsylvania budget of approximately $32.7 Billion was approved by Governor Wolf on June 22, 2018. This is good news for charities as government funding is in place for many programs, and the Education Improvement Tax Credit is available again.

2. Regarding the Tax Cuts and Jobs Act (“Act”) which was signed into law by President Trump in December, 2017, regulations and various guidance are starting to be issued by the U.S. Department of Treasury. As far as charities and planned giving, it is still too early to tell the effect of the Act on charitable giving, although many expect that charitable giving will decrease due to the fewer number of itemizers. Nevertheless, most advisors agree that individuals give to charities in order to further charitable purposes and not only for a tax deduction. For many individual taxpayers, the Act will result in lower taxes and more simplicity, which could lead to more charitable giving.

Given the changes in the Act, I expect to see taxpayers take certain actions to retain their itemized deductions, such as “bunching” deductions in one year. If a taxpayer can bunch deductions into one year (including charitable contributions, state and local taxes), they may still be able to itemize if they exceed the standard deduction amount ($12,000 if single, $24,000 for married filing jointly).

Some of the methods of bunching charitable contributions include establishing donor advised funds, private foundations, as well as non-grantor irrevocable trusts (see my Tax-Exempt Alert for April 2018). For “super bunching”, planned gifts such as pooled income funds, charitable remainder trusts and charitable gift annuities allow large, upfront charitable deductions.

Given these complexities, it is highly advisable for taxpayers to start planning well before the end of 2018. Year-end tax planning will be quite different than it has been in other years, and more planning and advice will likely be necessary for individual taxpayers. Hope is not lost after the Act and donors, charities and their advisors should continue to examine creative ways to continue charitable giving on a tax-deductible basis.

The Act is far-ranging and complicated. Please contact us if you need additional information.

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