Inflation, interest rates, income tax, and the IRS are ever-present topics during discussions with your clients. Let’s look at two of these hot topics and how they relate to charitable giving in the current economic environment.
Interest rates
Rising interest rates make certain charitable remainder gift vehicles more attractive.
Clearly, wealth planning priorities are affected by interest rates. Charitable components of estate and financial plans are no exception. When interest rates are high, your clients may want to look closely at annuity vehicles that leave a remainder gift to charity, such as a charitable remainder annuity trust.
Creating a charitable remainder annuity trust in a high interest rate environment, versus a low interest rate environment, drives down the present value of your client’s income stream, which means the value of the remainder passing to a nonprofit is relatively high and, therefore, so is the client’s upfront tax deduction for the charitable portion of the gift.
The IRS
Projected increases in the IRS’s ranks may be raising more advisors’ and clients’ eyebrows than actual tax hikes. The much anticipated Inflation Reduction Act is now law, and while it did include changes to a few income tax provisions, many tax professionals are viewing the law’s $80 billion in funding increases for the IRS to be the bigger headline.
Some commentators worry that the IRS still may not be able to build its staff and update technology as quickly as the legislation anticipated. Nonetheless, financial advisors, attorneys, and accountants are taking note. In all likelihood, shoring up the IRS’s operations means that the chances of client audits will increase.
Now is the time to make sure your clients understand the rules for charitable deductions and commit to keeping track of their donations in detail. Establishing a fund at the Omaha Community Foundation is an easy way for clients to organize and track their annual giving.
Some clients, for example, make a single, tax-deductible transfer of highly-appreciated stock each year to their fund at the Omaha Community Foundation. The proceeds from the sale of the stock are then used for distributions from the fund to the client’s favorite charitable organizations. In this situation, no matter how many different organizations benefit from the fund, the client only has to worry about one receipt from the Omaha Community Foundation for income tax deduction purposes.
Please reach out to learn more about ways the Omaha Community Foundation can work with you and your clients to navigate the ever-changing economic factors that influence their charitable giving plans. You can reach us at 402-342-3458 or giving@omahafoundation.org.
