Tax Reform and Charitable Giving

With the introduction of tax reform this year, you may be looking at your finances and wondering how you will be impacted. For many taxpayers, the new tax law creates an opportunity in the form of increased disposable income. Here are a few of the changes that may affect you.

Income Tax Brackets

Whether you’re a single filer or a married person who files jointly, separately or as head of household, your tax bracket will be new in 2018. The new law maintains seven tax brackets, but lowers rates for most brackets: 10, 12, 22, 24, 32, 35 and 37 percent. Most taxpayers will see their tax rate decrease. A married couple with a combined income of $150,000, for example, will go from a 25 percent tax rate to 22 percent under the new law.

Standard Deduction

The new law nearly doubles the standard deduction to $12,000 for single filers, $18,000 for heads of household and $24,000 for joint filers.

Personal Exemption

The new tax law repeals the personal exemption.

Itemize Deductions

If you elect to itemize this year, your deductions may look a little different (though charitable deductions remain under the new law). If you purchase a new home, there is now a cap on the mortgage interest deduction for the first $750,000 of debt on your primary residence. Under the new plan, if you itemize your deductions, you will be able to deduct up to $10,000 for income, sales and property taxes.

Charitable Contributions for Cash Gifts

The new law increases the 50 percent of your adjusted gross income limitation for donations by cash, check or credit card to 60 percent.

What Didn’t Change

  • Charitable Deductions
    You will still be able to deduct your charitable contributions when you itemize your taxes.
  • Long-Term Capital Gains and Dividends
    The tax rates on capital gains and dividends remain the same at 0, 15 and 20 percent, depending on your tax bracket.
  • Charitable Contributions of Appreciated Property
    The limitation on charitable gifts of long-term appreciated property to public charities will remain at 30 percent of your adjusted gross income. You can still carry over any excess for up to five additional years.

Talk With Your Tax Professional

There are many ways you can give this year that not only make a difference at The Pennsylvania State University, but offer you benefits as well. Please consult with your tax or financial advisors to determine the best charitable giving strategies for you.

A Great Time to Be Charitable

With the lower tax brackets, you may find yourself in a better financial position to help causes that matter most to you. There are many ways you can make a difference at Penn State while enjoying financial benefits for yourself. Here are two popular ones:

  1. Name The Pennsylvania State University as a beneficiary of retirement plan accounts. Assets in your IRA, 401(k) or other qualified retirement plan accounts remain subject to income tax when distributed to your heirs. If you name Penn State as a beneficiary of all or part of your plan, your gift will pass to us tax-free.
  2. Give from your IRA (if you are 70½ or older). Regardless of whether you itemize your taxes, this gift helps you fulfill your required minimum distribution and is not considered taxable income.

We Can Help

If you’re wondering how tax reform will affect your charitable contributions, we can help you sort through the changes. Simply contact Michael J. Degenhart at 888-800-9170 (toll free) or giftplanning@psu.edu with any questions you have.

A charitable bequest is one or two sentences in your will or living trust that leave to The Pennsylvania State University a specific item, an amount of money, a gift contingent upon certain events or a percentage of your estate.

an individual or organization designated to receive benefits or funds under a will or other contract, such as an insurance policy, trust or retirement plan

"I give to The Pennsylvania State University, a nonprofit corporation currently located at c/o Office of Gift Planning, 212 The 103 Building, University Park, PA 16802, or its successor thereto, ______________* [written amount or percentage of the estate or description of property] for its unrestricted use and purpose."

able to be changed or cancelled

A revocable living trust is set up during your lifetime and can be revoked at any time before death. They allow assets held in the trust to pass directly to beneficiaries without probate court proceedings and can also reduce federal estate taxes.

cannot be changed or cancelled

tax on gifts generally paid by the person making the gift rather than the recipient

the original value of an asset, such as stock, before its appreciation or depreciation

the growth in value of an asset like stock or real estate since the original purchase

the price a willing buyer and willing seller can agree on

The person receiving the gift annuity payments.

the part of an estate left after debts, taxes and specific bequests have been paid

a written and properly witnessed legal change to a will

the person named in a will to manage the estate, collect the property, pay any debt, and distribute property according to the will

A donor advised fund is an account that you set up but which is managed by a nonprofit organization. You contribute to the account, which grows tax-free. You can recommend how much (and how often) you want to distribute money from that fund to Penn State or other charities. You cannot direct the gifts.

An endowed gift can create a new endowment or add to an existing endowment. The principal of the endowment is invested and a portion of the principal’s earnings are used each year to support our mission.

Tax on the growth in value of an asset—such as real estate or stock—since its original purchase.

Securities, real estate or any other property having a fair market value greater than its original purchase price.

Real estate can be a personal residence, vacation home, timeshare property, farm, commercial property or undeveloped land.

A charitable remainder trust provides you or other named individuals income each year for life or a period not exceeding 20 years from assets you give to the trust you create.

You give assets to a trust that pays our organization set payments for a number of years, which you choose. The longer the length of time, the better the potential tax savings to you. When the term is up, the remaining trust assets go to you, your family or other beneficiaries you select. This is an excellent way to transfer property to family members at a minimal cost.

You fund this type of trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. You can also make additional gifts; each one also qualifies for a tax deduction. The trust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets. When the trust terminates, the remaining principal goes to Penn State as a lump sum.

You fund this trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. Each year the trust pays you or another named individual the same dollar amount you choose at the start. When the trust terminates, the remaining principal goes to Penn State as a lump sum.

A beneficiary designation clearly identifies how specific assets will be distributed after your death.

A charitable gift annuity involves a simple contract between you and Penn State where you agree to make a gift to Penn State and we, in return, agree to pay you (and someone else, if you choose) a fixed amount each year for the rest of your life.

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