Community Foundations Offer Year-End Tax Solutions
When clients anticipate owing a substantial sum to the IRS at year-end, professional advisors can recommend alternative destinations for their hard-won assets, while furthering their clients’ charitable goals.
December 20, 2007
by Amy Braunschweiger
Perhaps your client sold his business for $4 million in May, or maybe they simply had a high-income year. The value of their taxable assets has jumped substantially, and they need a creative solution by December 31. At this point, more and more professional advisors are pointing their clients toward community foundations, which are highly knowledgeable about local charities and not only support individuals’ philanthropic beliefs but also offer higher deduction rates than private foundations.
“We often get referrals from professional advisors guiding their clients through year-end tax issues,” says Kimberly Kur, senior advancement officer of professional advisor services for the Arizona Community Foundation. “Attorneys, CPAs, financial planners, trust officers and insurance agents send their clients our way.”
When it comes to tax savings, community foundations hold certain advantages over private foundations because they qualify as public charities.
Cash donations: Donors to community foundations can deduct up to 50 percent of their adjusted gross income (AGI), with a five-year carryforward, Kur says. So if a client has an AGI of $100,000 and they give $50,000 in cash to set up a fund, they may then be able to deduct $50,000 that year. On the other hand, if the same client gives to a private foundation, they can only deduct up to 30 percent of their AGI, or $30,000 on a $50,000 contribution, and would have to carry the balance forward.
Appreciated assets donations: The same pattern follows with appreciated property, like real estate or securities held for the long-term, Kur says. When a client donates appreciated property to a community foundation, the client can receive a deduction of up to 30 percent of their AGI, with a five-year carryforward. Those giving their appreciated assets to a private foundation, however, have a lower deduction limit of 20 percent.
Establishing a private foundation or trust takes time — something often in short supply for investors looking at a December 31 deadline. Yet it only takes one day — sometimes even only half an hour — to set up a fund at a community foundation. “Most community foundations make it easy,” says Christopher Hoyt, a law professor at the University of Missouri (Kansas City) and the author of The Legal Compendium for Community Foundations. “Usually there is a short gift agreement where the donor agrees to abide by the policies, and then they include a check.”
Community foundations offer a number of funds that can help clients find tax solutions, including, but not limited to:
A Creative Resource
When clients need an immediate and creative solution to their tax issues, community foundations serve as an excellent resource — not just for philanthropic reasons, but for tax purposes, too. “It’s much more time- and cost-effective for clients to work within the community foundation than do it themselves,” Kruzel says.
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Amy Braunschweiger is a freelance writer based in Brooklyn, N.Y. for Community Foundations. Her views as expressed in this article do not necessarily reflect the views of Wealth Management Insider or the AICPA.
Copyright ©2006-2007, Council on Foundations. Used with permission.