COMMUNITY NEWS
The Jewish Federation of Greater Philadelphia mobilizes
financial and volunteer resources to address the
communities’ most critical priorities locally, in Israel and
around the world.

2020 CONTINUES TO BE a tumultuous year, and the ramifications of the
election are still to be determined.

While Joe Biden is the president-elect, which party organizes the Senate will
not be clear until the Georgia runoff elections on Jan. 5. With narrower majorities
in both houses, it will be important for legislative proposals to be bipartisan, and
much of what the next administration hopes to accomplish may have to wait until
after the elections in 2022.

Several additional factors can impact key tax and charitable planning
decisions this year-end. While the pandemic continues to affect the economy,
House and Senate leaders remain at loggerheads in crafting additional COVID
relief that might include new tax provisions. Congress needs to pass funding
legislation by mid-December to avert a government shutdown. State and local
governments face unprecedented fiscal crises that also could lead to new or
larger tax burdens to balance their budgets.

While passage of the Biden administration’s tax program remains uncertain,
it revolves around several important tax changes that are targeted to individuals
with incomes greater than $400,000 and especially those with incomes over $1
million. The Biden plan contemplates reimposing a top income tax rate of 39.6%
for those with income above $400,000, and taxing capital gains and dividends at
ordinary income tax rates for those with income over $1 million.

In addition, the Biden plan would cap the value of itemized deductions
(including the charitable contribution deduction for those who itemize) at 28%.

The estate tax rate might increase from 40% to 45% and the estate and gift tax
exemption amount could be reduced to as low as $3.5 million (rates and amounts
that were in place in 2009). Other significant estate tax changes such as the elimi-
nation of the stepped-up basis at death (or imposition of a tax on unrealized gain
on a decedent’s final tax return) could also be part of a Biden plan.

Even if these proposed changes were enacted, it is unlikely they would be effective
until sometime late in 2021 or tax year 2022.

Some of the key considerations for year-end decisions include:
• Use appreciated assets when possible to make a gift: Donating stock or other
appreciated capital assets remains a best practice. You avoid capital gains tax
on the appreciation, and you can qualify for a charitable contribution deduc-
tion for the full fair market value of the shares or other assets as of the date of
contribution. With the current rally in the stock market, such assets could be
prime candidates for donation at year-end.

Josh Gross, chair of the Jewish Federation’s Investment Committee,
commented that “donating appreciated stock is almost always better than
donating cash. For Pennsylvania residents, the highest long-term federal
income tax is 23.80%, plus a 3.07% Pennsylvania resident tax on capital gains.

So if a Pennsylvania donor can donate appreciated stock they will save 26.87%
of taxes on the gains. This could be great for tax and portfolio planning as well
as possibly allow a larger gift than by just using cash.”
• Other charitable planning strategies might make sense: In addition to
gifting long-term appreciated securities, there are several other charitable
planning strategies that can be beneficial. For example, consider establishing
a (or adding to an existing) donor-advised fund at the Jewish Federation and
take advantage of an immediate charitable tax deduction and then recommend
grants from the fund over time. Other charitable giving vehicles to consider
include a charitable lead trust, especially as interest rates remain low. A CLT is
an irrevocable trust that benefits charity and the non-charitable beneficiaries,
such as family.

• Perhaps the tried-and-true year-end tax planning mantra prevails: Consider
18 DECEMBER 17, 2020
Kritchanut, Getty Images
Year-End Tax and Charitable Planning: Post-Election
deferring income and accelerating deductions where appropriate to reduce the
current year’s tax bill.

• Certain tax provisions enacted in 2020 could be most beneficial: The CARES
Act enables the current deduction of up to 100% of adjusted gross income for
cash gifts to charity (other than to donor-advised funds, supporting organiza-
tions and private foundations). Individuals considering large cash donations
may find this one-year expansion of the AGI limitation particularly beneficial.

• Don’t forget about the IRA Charitable Qualified Distribution: The IRA
Charitable Qualified Distribution remains an attractive alternative to those
over age 70½ who may not otherwise be able to itemize their deductions and
claim a tax benefit from a charitable contribution. Keep in mind Congress has
suspended the pension rules which impose “required minimum distribution”
requirements for 2020 in response to the COVID crisis, yet IRA contributions
to qualified charities still could make sense for some, especially individuals
who have used such contributions as a form of annual support for favored
charitable organizations. The maximum distribution in a single calendar year
is $100,000.

• Some wealth transfer strategies may be appropriate, especially as interest
rates remain low: It may make sense to engage in certain wealth transfer or
gift transactions before year-end to take advantage of the higher estate and gift
exemption amount. There are a number of estate planning techniques that can
be used, including using gifts or sales of property expected to produce income
or increase in value to remove existing or future wealth from the donor’s
transfer tax base.

Endowment professionals at the Jewish Federation of Greater Philadelphia
remain available to work with you and your other professional advisers to
maximize the benefits of these and other tax planning strategies for you and
the Jewish community. For more information, contact Jennifer Brier, director,
Planned Giving and Endowments, at jbrier@jewishphilly.org or 215.832.0528.

Content is for informational purposes only and should not be construed as legal,
tax or financial advice. When considering gift planning strategies, always consult
with your own legal and tax advisers.

JEWISH EXPONENT
JEWISHEXPONENT.COM