Five Ways to Help Clients Break Through Another Charitable Giving Ceiling in 2018Learn more about this firm
2017 shattered giving records. Strong markets and the prospect of tax reform drove total charitable giving past $400 billion in America for the first time ever1. Meanwhile, Schwab Charitable donors, many who work with advisors, recommended $1.9 billion in grants to philanthropic groups last fiscal year – the most in our history.
At the beginning of the year, the Tax Cuts and Jobs Act went into effect and caused speculation that charitable giving would suffer as a result. However, supported by strong economic conditions, donors have remained focused on their philanthropic passions, and demonstrated that giving can continue to thrive in the new tax environment. Between January and September 2018 alone, Schwab Charitable donors recommended $1.4 billion in grants to 60,000 nonprofit organizations, representing a 42% increase of dollars granted over the same period in 2017.
As we enter the final months of the year, advisors should consider the following five strategies which could help their clients give more, with more impact, and make 2018 another historic year for philanthropy.
1. Donate appreciated investments or assets to charity.
The new tax code retains the significant benefits of contributing non-cash assets to charity and many clients may face a high tax bill this year.
Despite stock market turbulence in 2018, the S&P 500® index has risen nearly 50% over the last five years2, initial public offering (IPO) volumes have increased 30% since last year3, and home prices continue to tick upward4. As a result, many clients may face a high tax bill this year due to gains in their investments.
Savvy advisors can help donors simultaneously maximize tax benefits and the impact of charitable giving with non-cash assets, such as publicly traded stock, IPO stock, restricted stock, private business interests, real estate, and private equity. By contributing non-cash assets to a charity, including a donor-advised fund, individuals generally do not pay capital gains tax on the sale of assets that have been held for more than one year. This can increase the amount available for charity by up to 20% compared to selling the assets and donating the proceeds.
So far in 2018, approximately 74% of contributions to Schwab Charitable were non-cash assets.
2. Track donations for charitable deductions.
The charitable deduction is one of the best ways to reduce philanthropically-minded clients’ annual income tax bill if they itemize deductions on their returns.
The Tax Cuts and Jobs Act limits many popular deductions, including mortgage interest and state and local taxes (SALT). However, the law retains the charitable deduction for individuals who itemize, preserving donors’ ability to offset their tax bill by deducting contributions to charity.
Not only is the charitable deduction preserved under the new law, but clients may continue to deduct up to 30% of their adjusted gross income (AGI) for non-cash donations. They also now have the option to itemize up to 60% of their AGI in cash donations, compared to 50% in previous years.
3. Concentrate charitable contributions and then itemize every few years, if clients could benefit from the standard deduction.
The new tax code allows some donors to benefit from both the increased standard deduction and the charitable deduction.
Under the new law, the standard deduction nearly doubled in size. Single filers may now claim a $12,000 standard deduction, while married couples filing jointly can claim a $24,000 standard deduction.
Advisors can help donors who have historically itemized deductions on their tax returns continue to do so while also taking advantage of the larger standard deduction. With a donor-advised fund, clients can concentrate their charitable contributions in higher income years and then support charities of their choice over time. This could help many donors itemize their charitable deductions in some years and benefit from the increased standard deduction in other years.
For example, let’s say a married couple has $23,000 of itemized expenses, including a $10,000 donation to a qualified charity or donor-advised fund. Because that amount is below $24,000, they would claim the $24,000 standard deduction every year; within two years they would claim a total of $48,000 in standard deductions.
But the couple can take a more tax-advantaged approach as an alternative option. Instead of donating $10,000 to charity in both 2018 and 2019, the couple concentrates, or bunches, their charitable donation, applying it all to a single year. The concentrated donation creates a total of $33,000 in itemized deductions. That means that over a two year period the couple will have $9,000 of additional tax deductions.
If the couple donates to a donor-advised fund, they can then spread out distributions to the charities of their choice over multiple years when help is needed most.
4. Invest charitable assets in socially responsible causes to help strategically plan and give over time.
Clients with donor-advised fund accounts can double their philanthropic impact through socially responsible investing.
Individuals who have contributed to a donor-advised fund may invest their account balances for tax-free potential investment growth ahead of future granting, with the goal of increasing the amount available for grants to charity over time. In fact, since Schwab Charitable was founded in 1999, investment growth has generated almost $3 billion in additional funds to support donors’ philanthropy.
If individuals allocate their donor-advised fund account balance to socially responsible investments, they can make an impact on the world twice with the same funds. The socially responsible investments can provide needed capital to worthy businesses and social ventures. The funds can then be used to again to recommend a grant to their favorite charities.
At Schwab Charitable, donors may invest in two pools with socially responsible mandates. Donors with larger accounts may also recommend an investment advisor to manage a custom impact investment strategy for their charitable dollars.
5. Be generous and timely with your giving.
Many nonprofits need grants now to meet annual targets.
Giving season is an ideal time for advisors to help clients evaluate their philanthropic activities against the charitable goals they set for themselves at the start of the year. Well-timed grants can provide extra impact to meet or exceed those goals.
Donors who reach out to their favorite causes during giving season often find they can help meet annual development targets or fund activities during the busy holidays. To have such gifts processed in time, it is best not to wait until the final weeks of the year. More than half of nonprofits receive the majority of their donations between October and December6, and as a result, they may need extra time for processing gifts.
Individuals who have donor-advised fund accounts should consider scheduling grants now to ensure they are approved and can be sent out well in advance of year-end. They can also simplify their year-end giving by setting up recurring grants and utilizing mobile and online granting features to give during charity events and while on the go.
Unleash the power of strategic giving
Americans are consistently among the most generous people in the world. With favorable economic conditions on their side and much of the uncertainty associated with tax reform behind them, advisors can help donors supercharge their philanthropic impact with a thoughtful approach to this year’s giving season.
1 Giving USA: Giving USA 2018: The Annual Report on Philanthropy for the Year 2017, June 2018. Total charitable giving totaled $410.02 billion in 2017. Individual giving accounted for 70% of the total, or $286.65 billion.
2 CNN Money. As of November 21, 2018.
3 EY: Global IPO trends: Q3 2018, page 10.
4 S&P Dow Jones Indices: ANNUAL GAINS FALL BELOW 6% FOR THE FIRST TIME IN 12 MONTHS ACCORDING TO S&P CORELOGIC CASE-SHILLER INDEX, October 30, 2018.
6 Guidestar: The Effect of the Economy On the Nonprofit Sector, October 2012.
Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund, an independent nonprofit organization, which has entered into service agreements with certain affiliates of The Charles Schwab Corporation.
Market fluctuations may cause the value of investments held in a donor-advised account to be worth more or less than the value of the original contribution to the funds. Socially screened funds exclude certain investments and therefore may not be able to take advantage of the same opportunities or market trends as funds that do not use social screens.
A donor’s ability to claim itemized deductions is subject to a variety of limitations depending on the donor’s specific tax situation.
Schwab Charitable does not provide tax or legal advice. Where specific advice is necessary or appropriate, Schwab Charitable recommends consultation with a qualified professional.
© 2018 Schwab Charitable Fund. All rights reserved.