Charitable Giving 2021: Looking Back, Looking Ahead March 4, 2021 Honolulu, Hawai‘i 1
Speakers:
Katharine P. Lloyd Senior Vice President & General Counsel Hawai‘i Community Foundation
Kawena S. Beaupré Senior Director of Gifts & Compliance, Associate General Counsel Hawai‘i Community Foundation
Michael J. O’Malley, Esq. Partner Goodsill Anderson Quinn & Stifel 2
Overview •Looking Back ▪ Giving Landscape after Tax Cuts & Jobs Act ▪ Continuing Trends post Secure Act ▪ CARES Act & How Covid19 Has Affected Philanthropy
•Looking Ahead ▪ CARES Act II (Consolidated Appropriations Act) ▪ Biden Tax Proposals
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Remember the TCJA? • Tax Cuts & Jobs Act 2017 ▪ Doubled the standard deduction ▪ Compressed the brackets & lowered the top rate ▪ Eliminated the Pease Phase Out ▪ Increased % limits from 50% to 60% for cash gifts to public charities
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Predictions About the TCJA & Charitable Giving • Predicted that both number of gifts & amount of charitable giving would decrease • Large standard deduction would eliminate tax incentive for non itemizers. • “Cost” of charitable giving increased as rates decrease.
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What Really Happened • # of itemizers dropped significantly • Dollar amount of Charitable Contributions dropped in 2018 but rebounded in 2019.
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Total giving, 1979-2019
(in billions of dollars)
2019 contributions: $449.64 billion by source of contributions (in billions of dollars – all figures are rounded)
Fewer Donors Giving More Dollars • $100,000 +
- 5%
• $40,000- $99,000
- 12%
• Less than $40,000
- 17%
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SECURE Act • RMD pushed out from 70 ½ to 72 years old • Contributions allowed after 70 ½ for those with earned income • Added some complexity to QCDs
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SECURE Act (continued) • Stretch IRA is no longer allowed – entire IRA distributed by the 10th Anniversary of the participants death. ▪ XC: no limit for “eligible designated beneficiaries” ❖ Surviving spouse ❖ Minor child ❖ Disabled/chronically ill beneficiary ❖ Beneficiary
less than 10 years younger 11
Coronavirus Pandemic Timeline 2020 • January 21 – CDC confirms first US coronavirus case • March 6 – first confirmed case in Hawaii • March 11 – World Health Organization declares Covid-19 a Pandemic • March 13 – Trump declares Covid-19 a National emergency • March 27 – Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law 12
CARES Act Universal Charitable Deduction • $300 above the line deduction for cash gifts • Does not apply to donor advised funds (DAF), supporting organizations & non-operating private foundations 13
CARES ACT Increased Limitation - Cash Gifts • Increases deduction limit from 60% to 100% of adjusted gross income (AGI) ▪ Cash gift ▪ To a public charity (No DAFs, private foundations, and supporting organizations)
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CARES Act Waiver of RMD • Suspends RMDs in 2020 from an IRA, 401(k), 403(b), and most defined contribution plans • Includes RMDs due by 4/1/2020 because account owner turned 70 ½ in 2019 15
Covid-19 and Donor Behaviors • • • •
54% plan to maintain giving 25% plan to increase giving 43% will support usual charities 25% will shift support to Covid response organizations
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Covid-19 and Philanthropy • 2019 - $449.64 billion to charities • 2020 - $459 billion to charities • Online giving up 21% • 28% of online gifts from mobile device • Increased donation amounts 17
Covid-19 Funding • First half of 2020 - $11.9+ billion for Covid • $452.9 million from commercial DAFs • 34% to hunger relief • 31% to religious organizations • 29% to health and medical organizations 18
HCF and Covid-19 • • • • • •
$12.2M Hawaii Resilience Fund (HRF) $77.5M total for COVID relief $3.4M DAFs 72% of donations to HRF were under $1K 569 total number of gifts under $1K Dec. 2020 - $10M MacKenzie Scott gift
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CARES ACT II • Universal Charitable Deduction - $300/$600 above the line deduction for cash gifts • 100% of AGI continues for cash gifts • No waiver of RMD for 2021 20
Most Popular Charitable Strategies Now Lifetime Giving
Legacy Giving
• Giving appreciated assets – especially stock • “Bunching” Gifts and increased use of DAFs for timing purposes • QCDs for non- itemizers and those who must take RMDs
• Giving IRAs to charity and less tax burdened assets to heirs • Increased use of CRTs as an Alternative to the Stretch IRA • Low interest Rate Environment – take a fresh look at Lead Trusts 21
Biden Tax Proposals • Raise taxes on individuals with income above $400,000
• Raise individual income, capital gains and payroll taxes. • Raise corporate income tax ▪ Impose corporate alternative minimum tax on corporations’ minimum book tax 22
Biden Tax Proposals – Economic Impact • Raise tax revenue by $3.3 trillion over next decades ▪ $2.8 trillion if account for macroeconomic feedback effects
• Reduce domestic GDP by 1.62% over long term
• ~7.7% less after-tax income for top 1% of taxpayer • ~1.9% decline in after-tax income for all taxpayer on average 23
Biden Tax Proposals – Details • Imposes 12.4% in OASDI Social Security payroll taxes on earned income above $400,000 ▪ “Donut hole” – wages between $137,200 (current wage cap) and $400,000 not taxed
• Top individual income tax rate increased from 37% to 39.6% • Long-term capital gains and qualified dividends taxed at top ordinary income tax rate of 39.6% on income above $1 million • Step-up in basis for capital gains taxation 24
Biden Tax Proposals – Details (cont.) • Expands the New Markets Tax Credit and makes it permanent. • Offers tax credits to small businesses for adopting workplace retirement savings plans. • Expands several renewable energy tax credits; restores Energy Investment Tax Credit and the Electric Vehicle Tax Credit. ▪ Ends subsidies for fossil fuels. 25
Biden Tax Proposals – Details (cont.) • Caps tax benefit of itemized deductions to 28% for those earning more that $400,000. • Restore Pease limitation on itemized deductions for taxable income above $400,000. • Phases out qualified business income deduction under Code Section 199A for taxpayers with income above $400,000. • Expands earned income tax credit (EITC) for childless workers aged 65+. • Provides renewable energy related tax credits for individuals. 26
Biden Tax Proposals – Details (cont.) • Expands Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents; increase maximum reimbursement rate for 35% to 50%. • Re-establishes the First-Time Homebuyer Tax Credit; provides up to $15,000 to first-time homebuyers. • Expands estate and gift tax by restoring rate and exemption to 2009 levels. 27
Biden Tax Proposals – Details (cont.) • Increase corporate tax from 21% to 28%. • Corporate minimum tax on corporations with book profits of $100 million or higher. • Doubles the tax rate on Global Intangibles Low Tax Income (GILTI) from 10.5% to 21%. • Establishes a Manufacturing Communities Tax Credit to reduce tax liability of businesses that experience workforce layoff or a major government institution closure. 28
Biden Tax Proposals – Details (cont.) • Imposes new 10% surtax on corporations that offshore manufacturing and service jobs to foreign countries in order to sell goods and services back to the U.S. market. Would raise effective corporate tax rate on such activities to 30.8%. • Establishes advanceable 10% “Made in America” tax credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll. 29
Biden Tax Proposals – Details (cont.) • Equalizes tax benefits of traditional retirement account (e.g., 401(k)s) and individual retirement accounts by providing refundable credits (vs. traditional deductibility). • Eliminates certain real estate industry tax provisions. • Expands Affordable Care Act premium tax credit. • Creates refundable renter’s tax credit capped at $5 billion per year. • Increases the generosity of the Low-Income Housing Tax Credit. 30
Questions? MAHALO
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Disclaimer Neither the Hawai`i Community Foundation nor its representatives engage in the active practice of law. The purpose of this presentation is for educational purposes only and is being provided with the understanding that the authors are not engaged in rendering legal, accounting or any other professional services. Due to the rapidly changing nature of the law, information contained in this presentation may become outdated. Thus, this presentation should not be utilized as a substitute for your own research and analysis to update the information and ensure accuracy. If legal advice or other expert assistance is required, the services of a professional should be sought. The authors specifically disclaim any liability, loss or risk incurred as a result of the use and application, either directly or indirectly, of any advice and information contained in this presentation, whether or not negligently provided. All examples, illustrations, tips and recommendations are suggestions only, and changes must be made depending on the specific circumstances in each case. Any federal tax advice contained in this communication (including any attachments or enclosures) is not intended and cannot be used for purposes of avoiding penalties imposed by the IRS or to promote, market, or recommend to another party any tax related matter(s) addressed herein. © 2021 Hawaii Community Foundation
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