Commentary: Tax law creates new approach to giving

November 23, 2018

The below article was published by the New Jersey Hills Media Group. Click here for the original article.

Ask any New Jerseyan about our state’s biggest challenges and you will hear about property taxes, the pension system, or New Jersey Transit.

But drill down to the local level and a whole series of other challenges reveal themselves. Not enough students in low-income districts are starting the school day with a nutritional breakfast. Whole communities are “food deserts” without easy access to quality grocery stores and fresh fruits and vegetables.

Many school districts have eliminated educational field trips, once a staple of early learning. Too few incarcerated youth are being properly rehabilitated, much less educated, compounding the problems that lead to a bleak future.

These challenges are not easily solved and rarely top of mind, including for many of our well-meaning state and local policymakers.

Yet the connections between residents in need and those willing to help continue to grow. Nonprofit organizations up and down New Jersey provide this critical link, and total giving at the national level continues to increase, topping $410 billion last year per the Giving USA report.

Donor advised funds have become especially popular in recent years, providing a streamlined way for individuals, families, or businesses to pool their philanthropic resources, effectively plan their charitable giving in ways that are tax efficient, and cultivate a deeper, more lasting impact on the communities or causes they care about.

Donor advised funds are particularly effective when hosted at a community foundation that is rooted close to home and itself involved in solving complex issues. Community foundations are well-equipped to maximize social good by enabling donor advised fundholders to invest in everything from favorite nonprofits to micro-lending programs and even their local towns or schools. In short, they help to solve the local problems that others often overlook.

Impact Of Tax Reform

The federal government recognizes community foundations’ critical role, having not only established National Community Foundation Week in November, but also through recent changes in the federal tax code.

While the “Tax Cuts and Jobs Act of 2017” has its pros and cons, it has brought to the fore an important accounting concept called “bunching.” Prior to the law, taxpayers were able to take numerous individual deductions. Now, the number of deductions is limited to mostly charitable contributions, mortgage interest, certain medical deductions, and a smaller State and Local Tax (SALT) deduction.

To counteract the limitations and eliminations of many itemized deductions, the new tax law expands the standard deduction (given to all taxpayers regardless of their actual deductions) to $12,000 for individuals and $24,000 for those married filing jointly. This change means that fewer folks will be itemizing going forward as they would need to exceed the standard deduction to continue to itemize. Yet for those who contribute to their own donor advised fund, it may make sense to consider bunching together their contributions rather than contributing on an annual basis.

By bunching multiple years of charitable gifts into one year, taxpayers can increase their annual tax savings. For instance, let’s assume a married couple donates $10,000 annually to charity and has other deductions of $12,000. With the new standard deduction of $24,000 this couple would no longer itemize.

However, if they bunch together five years of $10,000 charitable gifts into one year using their donor advised fund, the couple can itemize in the first year, claiming $62,000 of deductions and continue claiming the standard deduction in the following years. By “bunching” their donations, the couple has actually increased their total deductions over the same time period.

What’s more, even as the couple maximized their tax savings, their preferred charities would still receive their annual donation. The donor advised fund enables one to give at his or her own pace.

Role Of Community Foundations

In the same way that a donor advised fund is an effective tool for better tax planning, America’s community foundations are a great resource for optimizing philanthropic giving. Donors not only benefit from the income tax deduction, but also develop a strategy with their philanthropic advisors to ensure that their donations make as big an impact as possible.

Community foundations are an essential part of our social fabric, especially here in New Jersey. They fill in gaps in the safety net, they direct charitable resources, and they act as a powerful tool to gather resources and target them at the local level. They allow locally-minded philanthropists to join their resources together to achieve goals that can benefit their entire community. And because donors are now bunching their donations, community foundations can play a special role by helping donors give the same amount they always have.

There are many things to be concerned about in the world, but as the saying goes, charity begins at home. We might not right every wrong in New Jersey or beyond, but we can help more children start the school day with a healthy breakfast, as our fundholders are doing through the Healthy Start: School Breakfast Campaign. We can expand access to healthy fruits and vegetables in some of New Jersey’s “food deserts,” as our fundholders are doing through the Double Up Food Banks program.

We can get more kids on field trips across the state, as our fundholders are doing through the Field Trip New Jersey Fund. And we can help incarcerated youth return home and get on a better path, as our fundholders are doing through the Community Foundation of New Jersey’s targeted work with the Youth Justice New Jersey coalition of law schools, nonprofits and pro bono attorneys.

In this season of thanks, consider the ways to maximize the impact of your philanthropy and strengthen the causes and communities you care about most.

Hans Dekker is president of the Community Foundation of New Jersey. Matthew Masterson is a wealth advisor at Regent Atlantic. RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.