The Trump administration has not been quiet about wanting to shake up longstanding tax laws. As we head into 2017 and a Trump presidency, there is a lot of speculation about what changes we’ll see. Of course, it’s one thing to suggest changes to the tax code and another to get them through Congress. However, it’s certainly reasonable to think through the potential impact of new tax legislation.
In fact, if Trump is successful in changing the income tax brackets, deductions for charitable giving could provide less bang for your buck as early as 2017. If so, creating a donor-advised fund could be the best gift you give yourself this holiday season. A recent article from Time.com’s “Money” section highlights some of the reasons to consider a donor-advised fund before December 31st.
One of the advantages of a donor-advised fund is that you get the tax deduction now, but the money doesn’t immediately go to the ultimate recipients (i.e. your selected charities). And the account minimums can be quite reasonable. At Fidelity Charitable or Schwab Charitable, it takes as little as $5,000 to open a donor-advised fund. Other institutions may have higher minimums, such as Vanguard Charitable’s $25,000 minimum. However, using highly appreciated investments may be an easy way to fund your giving without incurring capital gains tax.
For example, if you had purchased $2,000 of stock now worth $5,000 and you went to sell it, there would be a capital gains tax on $3,000. If instead, you gift the shares into a donor-advised fund, you receive the tax deduction on the full $5,000 value without being required to pay the capital gains tax. It also allows you to transfer the assets into the fund now, but arrange for the gifts to pass to the charity or charities of your choosing at a later date.
With President-elect Trump looking to simplify the income tax code, these tax deductions from charitable donations may not go as far in the future, especially for those in higher tax brackets. However, you’ll want to speak with your financial advisor before making this decision; once you put the assets into the fund, there’s no going back. There is also a small administrative fee on the account balance in addition to the usual investment fees.
If you think this might be a good option for you, speak to your financial advisor. While we can’t know if or when material changes to the tax code will happen, talking to a financial professional about what options are best for you could be a wise decision.
Reference: Time.com (November 22, 2016) “This Is the Year You Should Open a Donor-Advised Fund for Charity”