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CHARITABLE GIVING STRATEGIES AFTER

TAX REFORMS E P T E M B E R 1 9 , 2 0 1 8

TO RECEIVE CPE CREDIT• Individuals

• Participate in entire webinar

• Answer polls when they are provided

• Groups• Group leader is the person who registered & logged on to the webinar

• Answer polls when they are provided

• Complete group attendance form

• Group leader sign bottom of form

• Submit group attendance form to training@bkd.com within 24 hours of webinar

• If all eligibility requirements are met, each participant will be emailed their

CPE certificate within 15 business days of webinar

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INTRODUCTIONS

Chad Gassen, CPA PartnerBKD CPAs & Advisorscgassen@bkd.com

Corey ZieglerVice President | Corporate CounselGreater Kansas City Community Foundationziegler@growyourgiving.org

1 Understand key provisions of the Tax Cuts and Jobs Act (TCJA) affecting individuals

Recognize how charitable giving may change under current law

Identify strategies for donors & charities to enhance charitable giving under new law

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WHAT WE’LL COVER TODAY

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INDIVIDUAL PROVISIONS POST-TCJATopic Previous Law New Law

Individual rates on ordinary income

Seven brackets with top rate of 39.6%(1)

Seven brackets with top rate of 37%(1)(2)

Capital gains rate Top rate of 20 percent(1) No change

Standard deduction $6,500 for single filers; $9,500 head of household & $13,000 MFJ

$12,000 for single filers, $18,000 head of household & $24,000 MFJ(3)

Personal exemption $4,150(4) Repealed(2)

(1) Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 for single filers ($250,000 MFJ)(2) Expires after December 31, 2025, except amounts would continue to be indexed for inflation using chained measurement of the consumer price index where applicable(3) Reverts to its form before January 1, 2018, after December 31, 2025(4) Subject to phaseout based on AGI under previous law

ITEMIZED DEDUCTIONS POST-TCJATopic Previous Law New Law

Out-of-pocket medical & dental expenses

10% Adjusted Gross Income (AGI) floor

7.5% AGI floor for 2017 & 201810% AGI floor after 2018

State & local income/sales, real estate & personal property tax expense(1)

Not limited Deduction limited to $10,000(2)

Home mortgage interest Interest on up to $1 million of acquisition indebtedness & $100,000 of home equity indebtedness

Interest on up to $750,000 of acquisition indebtedness; deduction for interest on home equity loans eliminated(2)(3)

(1) Excludes amounts paid or accrued for real & personal property tax in connection with a trade or business(2) Reverts to its form before January 1, 2018, after December 31, 2025(3) Interest deductions related to acquisition indebtedness for existing mortgages prior to December 15, 2017, are unchanged. Interest deductions related to home equity loans, except where proceeds are used for home acquisitions or improvement, is disallowed, regardless of when the debt was incurred

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ITEMIZED DEDUCTIONS POST-TCJATopic Previous Law New Law

Cash contributions to charity

Limited to 50% of AGI(1) Limited to 60% of AGI(1)(2)(3)

Miscellaneous itemizeddeductions

Deduction to the extent such expenses exceed 2% of AGI, including tax preparation & investment management fees

Repealed(2)

Itemized deductions limitation

“Pease” limitation if AGI exceeds $261,500 for single filers ($313,800 MFJ)

Repealed(2)

(1) AGI limitation is taxpayer’s contribution base or AGI computed without regard to any net operating loss carryback& applies generally to cash contributions made to public charities & private operating foundations. Cash contributions to veteran organizations & private nonoperating foundations are generally limited to 30 percent of AGI(2) Reverts to its form before January 1, 2018, after December 31, 2025(3) Repeals exception to contemporaneous written acknowledgment requirement for contributions of $250 or more when donee organization files required return. Effective for contributions made in tax years beginning after December 31, 2016

OTHER PROVISIONS POST-TCJATopic Previous Law New Law

Alternative minimum tax (AMT) for individuals

Exemption of $55,400 for single filers ($86,200 MFJ); exemption begins phase-out at $123,100 & $164,100, respectively

Exemption of $70,300 for single filers ($109,400 MFJ); exemption begins phase-out at $500,000 & $1 million, respectively(1)

College athletic seating donations

80% deduction Nondeductible

Corporate tax rate Top rate of 35% Flat rate of 21%

Estate tax 40% rate with $5.6 million basic exclusion amount per taxpayer(2)

40% rate with $11.2 million basic exclusion amount per taxpayer(1)(2)

(1) Expires after December 31, 2025, except amounts would continue to be indexed for inflation using chained measurement of the consumer price index where applicable(2) Adjusted for inflation annually

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CHARITABLE DEDUCTION LIMITATIONS*

100%

50%Regular

30%Special

30%20%

*An individual’s charitable contribution deduction for a tax year is limited to a specified percentage of their contribution base or adjusted gross income (AGI) computed without regard to any net operating loss carryback

60%

Overall50%

CHARITABLE DEDUCTION LIMITATIONS*

*An individual’s charitable contribution deduction for a tax year is limited to a specified percentage of their contribution base or AGI computed without regard to any net operating loss carryback

**Assets where sale results in long-term capital gain (includes Section 1231 trade or business assets)

***Fair market value if smaller

Topic Public Charity/Donor Advised Fund (DAF)

Private Foundation (PF)

Cash60% until 2025; 50% thereafter

30%

Capital gain property**

Fair market value 30% 20%

Tax basis of property***

50% 20%

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MECHANICS OF THE CARRYOVER

• Limitations applied in following order• 100 percent (2017/2018 + any carryforwards)• 60 percent (until 2026 + any carryforwards)• 50 percent• Regular 30 percent• Special 30 percent• 20 percent

• Excess contributions carried over to succeeding five years

• Used on first-in, first-out basis after any current-year contributions

MECHANICS OF THE CARRYOVER

• Charitable contribution carryforward reduced to extent reduces taxable income & increases NOL for taxable year succeeding the contribution year (§170(d)(1)(B))

• Prevents double tax benefit

• Code/regulations do not provide specific guidance for purposes of computing ATNOL

• CCA 201226021 provides corporate taxpayer’s charitable contribution deduction may reduce amount of ATNOL absorbed in carryover year

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FINAL REGS ON SUBSTANTIATION RULES• Effective July 30, 2018 (except education/experience rules)

• Adopt 2008 proposed regs (with some minor changes)

Threshold Required Donor Substantiation

Less than $250 Obtain receipt or keep reliable records

$250–$500 Contemporaneous written acknowledgment

$501–$5,000 Contemporaneous written acknowledgment + complete Form 8283* (Section A)

More than $5,000 Contemporaneous written acknowledgment + complete Form 8283* (Sections A & B) + qualified appraisal

$500,000 or greater Same as > $5,000 + qualified appraisal must be attached to return

*Completion of Form 8283 applies only to noncash contributions

DONATING CASH IS GOOD, BUT APPRECIATED ASSETS MAY BE BETTER FOR DONOR

Assumptions: Donor is in the 35% federal tax bracket, asset that has been held more than one year has a cost basis of $2,000 & capital gains tax rate is 20%. This example does not take into account any net investment income tax, any state or local taxes, alternative minimum taxes or limitations on itemized deductions that may be applicable

Gift of Cash Gift of Appreciated Assets

Fair Market Value of Gift $25,000 $25,000

Charitable Deduction $25,000 $25,000

Income Tax Savings $8,750 $8,750

Long-Term Capital Gains Tax Avoided n/a $4,600

Total Donor Tax Savings $8,750 $13,350

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CONVERT COMPLEX ASSETS INTO CHARITABLE DOLLARS

• Real Estate

• Residential Property

• Commercial Property

• Farmland or Undeveloped Property

• Privately Held Business Interests

• C-Corp or S-Corp Stock

• Limited Liability Company (LLC) Interests

• Limited Partnership Interests

• Other Alternative Assets• Life Insurance Policies

• Retirement Plans

• Negotiable Instruments

• Oil & Gas Interests

• Private Equity

POSSIBLE EFFECT OF TCJA ON CHARITABLE GIVING

• With the increase in the standard deduction, the number of individual donors who itemize their deductions is forecasted to decrease. If donors do not itemize their deductions, they may be less motivated to make charitable gifts in 2018–2025 tax years.

• With the increased estate tax exemption (over $11 million per person), charitable bequests may also decrease.

Keep in mind, many donors are motived by non-tax reasons as well.

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NON-TAX FACTORS THAT MAY INFLUENCE A DONOR’S CHARITABLE GIVING STRATEGY

• Philanthropic vision

• Time horizon

• Cash flow needs of the charity & the donor

• Size of the estate

• Type of asset

• Sophistication of charity

• Family legacy

CHARITABLE GIVING & TCJA:A COMMUNITY FOUNDATION’S PERSPECTIVE

• The Greater Kansas City Community Foundation experienced a 99 percent increase in new donor-advised funds (DAFs) opened in 2017 (363 total)—182 new DAFs opened in December alone

• One-half of those new funds started with less than $50,000

• The Community Foundation also saw a 32% increase in the number of stock gifts over the previous year

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DONOR-ADVISED FUNDS MAKE GIVING EASY & EFFICIENT

GIVE GRANT GROW

Donor gives cash, stock or other assets to a donor-advised fund. Contributions are tax

deductible.

Donors use their fund to support their

favorite charities.

Assets in the fund are invested, either in the

sponsoring organization’s pools of investments or

with the donor’s financial advisor. Charitable dollars

grow tax-free.

DAFS ARE A GREAT TOOL FOR THOSE WHO …

• are holding appreciated assets (publicly traded securities or other complex assets).

• are private about their wealth &/or giving.

• are nearing retirement.

• are selling a business.

• are too busy to handle the administrative side of giving (collecting tax receipts, researching charities).

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ENHANCE CHARITABLE GIVING IN THE CURRENT TAX ENVIRONMENT

• Bunching/Bundling of gifts – Donors who wouldn’t otherwise itemize may combine two or three years of charitable contributions into one calendar year in order to exceed the standard deduction in that year.

• If gifts are bunched into a DAF, donors will use the assets in their DAF to consistently support their favorite charities, even in years when they take the standard deduction & do not make any new contributions into the DAF.

BUNCHING: A STRATEGY FOR TODAY’S TAX CLIMATE

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ENHANCE CHARITABLE GIVING IN THE CURRENT TAX ENVIRONMENT

• Higher wealth donors who itemize deductions may give even more

• “Pease” limitation on itemized deductions suspended so donors might see increased tax benefit of the deduction

• AGI limit for cash donations to 50 percent organizations increased to 60 percent

• Increased use of IRAs to make qualified charitable distributions by donors who are at least age 70 ½

• Avoid income tax on the distribution & support favorite charities

• Annual limit of $100,000

• Counts toward required minimum distributions

ENHANCE CHARITABLE GIVING IN THE CURRENT TAX ENVIRONMENT

• Corporations might see a decrease in taxes, providing more discretionary income.

• As a result, companies may be motivated to implement matching gift programs for employees to encourage them to give at any level (even if they take the standard deduction) because it will leverage their donations to the charities they support.

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GIVING STRATEGIES FOR DONORS WISHING TO RETAIN SOME CONTROL

• Life Income Gifts

• Charitable remainder trusts

• Gift annuities

• Charitable lead trusts

• Retained Life Estate in Real Estate

Questions?

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CONTINUING PROFESSIONAL EDUCATION (CPE) CREDIT

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

CPE CREDIT

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at training@bkd.com

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Thank You!Chad Gassen | cgassen@bkd.com

Corey Ziegler | Ziegler@growyourgiving.org