Author: Brad A. Galbraith JD, CPA
The Trump tax reductions affect most Americans. But how does tax reform affect charities and donors, specifically those in southwest Florida? Let’s take a closer look.
First, deductions for state and local taxes have been limited to just $10,000. For snowbirds from high-income tax states, the result may actually be an increase in federal income taxes. I predict that this tax law change will result in even more snowbirds making Florida their domicile.
The decision to change domicile from a northern state to Florida requires a state-by-state analysis. In some states, auditors examine taxpayer’s charitable contributions and will use the state in which the chosen charities are located as evidence of the taxpayer’s intent. For example, Virginia explicitly includes the location of charitable contributions as a factor to be used in determining where a taxpayer is domiciled.
As more snowbirds make Florida their domicile, advisors should encourage them to make local charities a part of their annual giving plan. One option is to establish a donor advised fund through the Community Foundation of Collier County. Once established, distributions from the fund are not limited to charities in southwest Florida. In fact, distributions can be made to charities in northern states as well.
Secondly, the standard deduction has been doubled. Some charities are fearful that this may reduce the incentive for charitable giving. Instead, it simply means more careful planning is required to get full benefit from charitable gifts. Again, advisors should consider recommending that clients establish a donor advised fund through the Community Foundation of Collier County and fund it with two years of anticipated charitable contributions. This results in an immediate tax deduction for the entire contribution and yet the distributions to charities can be made over the two year period according to the donor’s preferred timing. By stacking two years of charitable contributions into one year, the deductibility of charitable contributions can be maximized.
Finally, the so-called “charitable rollover” is now permanent. The charitable rollover allows taxpayers aged 70½ or older to transfer up to $100,000 annually from their IRA accounts directly to charity without having to recognize the distribution as income. The distribution, while not taxable to the donor or the charity, counts as the donor’s required minimum distribution. Importantly, donors are not permitted to make charitable rollovers to donor advised funds or private foundations but only to public charities.
In conclusion, the new tax laws contain many provisions that impact charities and donors. The three changes discussed above provide advisors with new opportunities to help their clients, and at the same time, help charitable organizations in southwest Florida.