May 9, 2017
Charitable donations and gifts to donor advised funds rose substantially in 2016, due in part to anticipated tax changes this year. And while the failure of Republicans to come together on a health care plan has raised questions about the future of tax reform, it’s still likely some legislation will pass this year, in part because Republicans have a vested interest in achieving legislative victories before the 2018 midterm elections.
Potential tax changes could reduce or eliminate the value of charitable deductions.
Though the precise components are unclear, proposals are likely to call for a blend of corporate and individual income tax cuts. The Trump administration has proposed a reduction in the top marginal tax rate to 33% from today’s 39.6%. The lower the marginal tax rate, the lower the tax deduction in dollar terms for charitable contributions. Furthermore, conservatives in Congress may insist that the tax cuts be “revenue neutral” in order to prevent increasing budget deficits. The offset could be a cap or elimination of itemized deductions, including the charitable deduction.
Changes could be “effective upon enactment,” thus grandfathering donations made prior to passage.
Sometimes new tax legislation is made retroactive to January 1, but other times it only goes back to mid-year. In 2003, for example, when the capital gains tax rate was reduced to 15%, it only applied to trades made after May 6 (the date the legislation was passed). So, charitable donations made in early 2017 might benefit from both a higher marginal tax rate and an exemption from any newly imposed limits.
For more information contact:
Greg Singer, Sr. VP, Client Solutions
Capital Group Private Client Service
grds@capgroup.com; 212-830-0104
Norman Sanyour, Sr. VP, Investment Counselor
Capital Group Private Client Services
nmrs@capgroup.com; 212-641-1735
The views expressed herein are those of the author and do not necessarily reflect the views of everyone at Capital Group Private Client Services. The thoughts expressed herein are current as of the publication date, are based upon sources believed to be reliable, are subject to change at any time and should not be construed as advice. There is no guarantee that any projection, forecast or opinion in this paper will be realized. Past results are no guarantee of future results. This material is provided for informational purposes only and does not take into account your particular investment objectives, financial situation or needs. You should discuss your individual circumstances with an investment counselor.