On August 16, 2022, President Biden signed into law the Inflation Reduction Act. A few tax provisions made it into the final legislation (e.g., a corporate minimum alternative tax). Other items were taken off the table at the last minute, most notably the proposed elimination of the carried interest tax break. Thanks to the Act’s inclusion of $80 billion in budget increases for the Internal Revenue Service, taxpayers, and their advisors can likely expect greater scrutiny from the IRS on complex or aggressive transactions in the years ahead as the IRS beefs up its expertise and invests in its enforcement operations.
Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions. SECURE 2.0 could pass through Congress by the end of the year.
While potential tax reform may be top of mind for taxpayers and advisors, it’s also important to remember that the Tax Cuts and Jobs Act of 2018 included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies. In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range. Because assets transferred through lifetime gifts and bequests to charitable organizations are not subject to gift or estate tax, giving to charities may be an effective tax planning tool for even more taxpayers after 2025.
As your clients begin to set their philanthropic goals for the next several years, the Donor Services Team at the Omaha Community Foundation is happy to partner with you on strategies to maximize not only your clients’ tax benefits, but also the benefits to the community. Our team works with you to help your clients support community needs now and in the future through Donor Advised Funds, Field of Interest Funds, Designated Funds, and other vehicles established at the Omaha Community Foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support, and you in your trusted role as the client’s advisor.