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Wednesday November 20, 2019

Washington News

Washington Hotline

Benefits of Bunching Charitable Gifts

With the doubling of the standard deduction in 2018, the number of taxpayers who itemized deductions declined substantially. In 2017, nearly 30% of taxpayers itemized, but with the larger standard deductions, only about 10% of taxpayers will itemize this year.

The standard deductions in 2018 doubled to $24,000 for married couples and $12,000 for individuals. The married standard deductions increased to $24,400 in 2019 and $24,800 in 2020. Individual standard deductions are one-half the married number.

What tax planning strategy might benefit generous taxpayers who know there is a large standard deduction and still desire to help a favorite charity? Let's consider the options for two generous families – John and Mary Jones and Harry and Susan Green.

Both couples pay $8,000 in state and local taxes and $7,000 in home mortgage interest. They each give $8,000 to their favorite charity each year. Their total itemized deductions are $23,000 per year.

Because the standard deduction is larger than their $23,000 in itemized deductions, John and Mary take the $24,400 standard deduction in 2019 and $24,800 amount in 2020. Their total deductions over two years are $49,200.

Meanwhile, Harry and Susan decide to "bunch" their charitable deductions. They give $16,000 in 2019 and nothing in 2020. Because their 2019 itemized deductions of $31,000 are more than the standard deduction, they elect to itemize their deductions. In 2020, they take the standard deduction of $28,800. Their total deductions are $55,800.

Bunching Charitable Deductions


FamilyDeductions for 2019 and 2020
Harry and Susan $55,800
John and Mary$49,200
Added Deduction $6,600

By "bunching" their deductions, Harry and Susan increase their tax savings from their charitable gifts. The $6,600 increased deductions may save $1,848 in their 28% federal and state income tax brackets.

Editor's Note: If your combined state and local tax, home mortgage interest and charitable gift deductions are close to the married or individual standard deductions, you may want to visit with a tax advisor about "bunching" your charitable gifts. Making larger charitable gifts every other year could be an excellent tax-saving strategy.

Eighty Conservation Easement Cases in Tax Court


In IR-2019-182, the Service announced a substantial increase in enforcement actions on syndicated conservation easements. This action is consistent with Notice 2017-10, 2017-4 IRB 544. In Notice 2017-10, the Service required syndicated conservation easements to be flagged as listed transactions.

IRS Chief Counsel Michael Desmond reports there are over 80 conservation easement cases in tax court.

The IRS announced, "Where it has not done so already, the IRS will soon be moving in the Tax Court to invalidate the claimed deductions in all cases where the transactions failed to comply with the basic requirements, leaving only the final penalty amount to be determined."

IRS Commissioner Charles Rettig stated, "We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly-inflated deductions based on these aggressive transactions. Every available enforcement option will be considered, including civil penalties and, where appropriate, criminal investigations that could lead to a criminal prosecution. Our innovation labs are continually developing new, more extensive enforcement tools that employ advanced techniques. If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options."

There will be a coordinated effort of several IRS sections, with involvement by Douglas O'Donnell, Commissioner of the IRS Large Business and International Division.

O'Donnell explained his strategy and noted, "To the extent they are not, we have appropriate penalties to use to bring people into compliance." Because many of the charitable conservation easement cases involve valuation issues, he continued, "We found out that we did not necessarily have enough appraisers or valuation specialists, so we have gotten approval to contract for a significant number of outside experts to help us with this work."

Chief Counsel Desmond concluded, "A lot of the transactions we are seeing recently really seem quite divorced and have no connection at all to charitable intent in preserving land."

Editor's Note: Conservation easements have been favored by Congress. The charitable deduction limit for appreciated property conservation gifts has been increased from 30% to 50%, and the carryforward period extended from 5 years to 15 years. Qualified farmers and ranchers can qualify for a 100% charitable deduction limit. However, some promoters of syndicated partnerships have promised investors extremely large deductions. Several conservation organizations welcome the IRS enforcement actions in the belief that this process will protect the long-term validity of the enhanced conservation easement deductions.

Foundations Unite on 1.39% Excise Tax


In a November 6 letter, the Alliance for Charitable Reform, Independent Sector, the Council on Foundations and other nonprofits presented a united front to Congress and requested a 1.39% excise tax on private foundation investment income.

Private foundations are generally subject to a 2% excise tax on net investment income (NII). If a private foundation meets certain distribution requirements, the tax is reduced to 1%.

Previously, many of these nonprofit organizations had supported a simplification of the private foundation excise tax by reducing it to 1%. However, the letter by the coalition of organizations notes, "We have worked on this issue for many years and strongly believe the two-tiered system is a hindrance to increased grantmaking. Since simplification of the tax is our premier objective as we approach any potential year-end tax changes, we have come together to support the revenue-neutral 1.39% rate and will remain in lock-step as a field as this legislation moves forward this year."

The nonprofits groups conclude, "As you decide on which tax provisions to include in disaster relief or any other legislative vehicle, we are united in asking you to include the simplified 1.39% rate."

Editor's Note: The 1.39% rate will reduce the NII excise tax for most private foundations, but will increase the tax for those making larger distributions. The 1.39% rate specified in the Private Foundation Excise Tax Simplification Act (H.R. 4953) was chosen because it is revenue-neutral and therefore has greater likelihood of being included in a tax bill. The simplification is generally beneficial and will have no net impact on tax revenue.

Applicable Federal Rate of 2.0% for November -- Rev. Rul. 2019-25; 2019-45 IRB 1 (17 October 2018)


The IRS has announced the Applicable Federal Rate (AFR) for November of 2019. The AFR under Section 7520 for the month of November is 2.0%. The rates for October of 1.8% or September of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published November 15, 2019
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Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Juliana E. Olsen-Valdez, 2018
Carroll Family Scholarship

"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
Marian H. Cuff Endowed Scholarship

"Lawrence is a special institution with nice people around the campus. I better myself by trying out different things and using new ways to think critically. Even though I am a Philosophy major, I have successfully taken classes in Anthropology, Biology, Economics, and Government. In addition, I still find many great extracurricular opportunities to explore, such as singing with Viking Chorale, even though I am not a music major. While having the great experience of volunteering at the elderly center last year, I became an elder advocacy coordinator at the Volunteer Community Service Center. At Lawrence, I've learned to handle difficult academic problems while looking forward to exploring possible opportunities. I am very grateful to be awarded the Marian H. Cuff Endowed Scholarship for every year I have been here, and appreciate that the scholarship has provided this wonderful Lawrence experience to me."

Anthony Cardella, 2018
Ansorge Family Scholarship

"I am so excited that I am able to attend Lawrence University. I know that I will make great progress studying piano with Dr. Michael Mizrahi. Since being at Lawrence I've already made a lot of progress and I really love it here. I am so grateful for the Ansorge Family Scholarship that made it possible for me to come to Lawrence because without it, I might not have been able to afford the cost of attending a school that is a great fit for me and a place where I will learn so much and go so far."

Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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This site is informational and educational in nature. It is not offering professional tax, legal, or accounting advice.
For specific advice about the effect of any planning concept on your tax or financial situation or with your estate, please consult a qualified professional advisor.