Planning for the standard deduction, "quasi-endowments," and why giving makes you smile

Standard deduction planning: Avoid leaving dollars behind

One of many items on the legislative “watch list,” especially in light of the upcoming elections, is the standard deduction. Without intervening legislation, in 2026 the standard deduction for individual taxpayers younger than age 65 is scheduled to drop from $14,600 to $8,300. 

While this may spell higher taxes for some taxpayers, the news could be positive for charitable giving. You’ll recall that the Tax Cuts and Jobs Act of 2017 increased the standard deduction significantly. As a result, only 9% of taxpayers itemized deductions in 2020 compared with 31% in 2017. Although certainly not the only factor motivating charitable giving, tax incentives do play a role in donors’ decision-making about whether, when, and how much to give. Indeed, statistics recently released by the National Bureau of Economic Research indicated that the increased standard deduction resulted in $20 billion fewer charitable donations in 2018 alone.

DCCF is happy to work with you and your tax advisors to map out a charitable giving plan for the next few years to navigate anticipated changes in the law. For example, this year you could consider using a technique called “bunching” to make two years’ worth of gifts up front to your donor-advised fund to take advantage of the standard deduction while it is still high. 

If you determine that bunching is right for you, naturally, cash is easy to give in a year of higher-than-expected income. So, for example, if you earn a large bonus this year, get a big increase in compensation, take a job buyout, or experience a significant liquidity event, your surplus income could make bunching ideal. 

Most of the time, though, even when you deploy a bunching strategy, donating highly-appreciated marketable securities is a better choice than giving cash because it is extremely tax efficient. Stock given to a public charity, such as your donor-advised or other type of fund at the community foundation, typically is deductible at the asset’s fair market value. DCCF, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support your philanthropic interests than if you had sold the stock and given the proceeds to your fund. 

You can think outside of the box, too, and explore other assets that make great gifts to your fund. As is the case with gifts of other long-term appreciated assets, a gift of real estate or closely-held stock avoids capital gains taxes and results in more money for your favorite causes than if you had sold the asset, taken the tax hit, and donated the proceeds. 

The bottom line?  Now is a perfect time to look ahead at your charitable giving plans so that you don’t leave dollars behind. Your own financial situation, as well as the charities you support, will benefit from your careful planning. DCCF is here to help! 

Endowments and quasi-endowments: Similar, but not exactly the same
If you’ve been involved in philanthropy for a while, you certainly have heard the term “endowment.” You’re also likely aware that endowments are established to create a permanent source of support for a specific organization, DCCF itself, or a particular cause. 

Perhaps you’ve also heard the term “quasi-endowment.” What’s the difference, you might be wondering, between a “standard” endowment and a quasi-endowment? It’s especially confusing because the term “endowment” is often used in casual conversations to mean either or both types of endowments. It’s an important distinction because they are very similar but differ in critical ways. 

On one hand, the original investment of assets and its appreciation (the “principal”) of a “standard” endowment must be held in perpetuity, and annual distributions are made from net income (such as interest and dividends). The terms of the endowment gift, typically set by the donor who establishes the endowment, prohibit the recipient organization’s board of directors from ever accessing the principal. 

On the other hand, in the case of a quasi-endowment, the organization’s board of directors may be able to elect to bypass restrictions and access the principal for certain stated purposes such as emergencies, and in some circumstances even vote to remove the restrictions altogether. Annual distributions to supplement the organization’s budget are often made from a quasi-endowment based on market value percentages. The terms of quasi-endowments are typically set by the organization’s board of directors, and funds are added to the quasi-endowment by the organization itself at various points in time at the decision of the board of directors. This happens, for example, when the organization has a budget surplus or receives an unrestricted bequest or gift from a donor. 

In either case, our team can help. If you’d like to establish a permanent endowment at DCCF, whether during your lifetime or through a bequest, to support either DCCF, or a favorite charity, the board of directors and staff at DCCF will ensure that the principal stays intact in perpetuity. On the other hand, if you prefer that your endowment gift include more flexibility for the organization it supports, our team can work with you and the organization to help structure your gift in the form of a quasi-endowment.  

DCCF is experienced at managing the accounting, investment, and distribution aspects of all types of endowment funds. When you work with DCCF, it’s easy and rewarding to structure your endowment as a gift to improve the quality of life for future generations. 

Giving to others gives us lots of reasons to smile

August is national Make-A-Will month and a great time to check in on key components of your estate plan. The reality, as we knoDCCF is honored to serve at the center of your philanthropy. Whether you’ve established a donor-advised or other type of fund, arranged for a bequest to a fund or to DCCF, or both, our team strives to help you organize your giving to make it easy and convenient. If you’ve not yet established a fund or arranged for a bequest but are considering it, we look forward to continuing the conversation! 

Charitable giving is important not only locally and nationally, but also internationally. Indeed, the World Giving Index 2024 Global Trends in Generosity reports that 4.3 billion people worldwide helped someone they didn’t know, volunteered time, or donated money to a good cause in the preceding month. 

It’s no surprise that research indicates that giving to others actually puts donors in a good mood. This is especially the case, studies show, in three ways:

•    The act of giving feels good in the moment;
•    People like having choices about their giving;
•    People like to see the results of their giving.

We know this intuitively based on our own experiences. For instance, many of us enjoy picking out a birthday gift for a friend or family member and watching them open it. 

The same good feelings translate to charitable giving. People enjoy working with DCCF. Certainly one reason is because the community foundation activates the research’s three key factors:

• Feels good in the moment. DCCF makes it easy to give cash, stock, or other assets to a type of fund that is the best fit for you, whether that’s a donor-advised fund, designated fund, field-of-interest fund, or unrestricted endowment fund. When you initiate the stock transfer, for example, it’s fun because DCCF makes it easy. You know immediately that you’ve taken meaningful action.
• Offers choices. DCCF’s tools are flexible to meet your charitable giving goals. We can help you set up an annual giving strategy, establish a bequest to your fund in your estate plan, and everything in between. Most of all, we want to help you support the causes that are most important to you, whether those are particular charities or broader areas of community need. 
• Shows results. DCCF has its finger on the pulse of our region’s priorities and how charitable giving can improve quality of life for everyone. Every day, we work with you and other families, individuals, and businesses to help you not only make a difference, but also actually see the difference you are making. From research and hands-on site visits, to networking with other donors and meeting with community leaders, our team will provide a wide range of opportunities for you to see first-hand the results of your philanthropy. 

We look forward to helping you incorporate charitable giving into your life in ways that help the community and make you happy! 

2024 DCCF Year-end Giving Deadlines

Please share with our community! Parking amnesty month is here! Check out how you can pay off your City of Lawrence, Kansas - Municipal Government parking fines and help out a local nonprofit organization providing food to our friends and neighbors. All the details can be found here: https://lawrenceks.org/parking/amnesty/ .

DCCF is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.