Legal expert and The Fund Raising School faculty member Phil Purcell recently sat down with Bill Stanczykiewicz to talk taxes. With tax season upon us, it’s important to make sure fundraising professionals and donors are aware of particular aspects of federal tax policy. You can listen and subscribe to the podcast or read the full transcript below.

Hi, I’m Bill Stanczykiewicz. This is the First Day from The Fund Raising School. And I’m joined today by my colleague, Phil Purcell.

Phil actually is the director of planned giving in the central territory for the Salvation Army. He’s also highly sought out by several nonprofits and foundations and associations because of his significant legal expertise associated with different laws and regulations at the federal and many state levels for charitable giving. And that’s why Phil is such a wonderful asset for us as well, as a long-time member of the faculty for The Fund Raising School. And, Phil, always a delight to talk with you about these legal issues.

Especially here in 2021, we want to make sure that fundraisers are aware of some particular aspects of federal tax policy related to non-itemizers and itemizers. What do fundraisers need to know?

Phil Purcell: Well, starting, as you indicated, with non-itemizers, as many people hopefully are aware, there are what are called universal deductions available. And these are tax benefits for gifts to qualified charities, 501c3 organizations, regardless of whether the taxpayer or donor itemizes on their tax return, a very small percentage of taxpayers actually itemize.

This tax benefit is available to anyone, regardless whether they itemize, and the dollar limits are $300 for an individual filing taxpayer and $600 for a married couple. And that’s for 2021. It expires December 31, 2021, so it’s important for everybody listening to promote this time-limited opportunity. Again, $300 single taxpayer, $600 married couple.

BS: And so that’s important for people who don’t itemize. What about for donors who do itemize? There’s an important consideration for them as well.

PP: For itemizers, there has always been a limit, a cap on how much one can itemize in a given year for gifts. And that cap or limit has been stated as a percentage of adjusted gross income. And actually the percentage limit depends on the type of gift, so cash gifts have a different limit or cap than non-cash gifts such as stock or real estate.

Very quickly, the limit or cap for non-cash gifts, like stock or real estate, has always been 30 percent of adjusted gross income. So, you would calculate your adjusted gross income, multiply that by 30 percent, and there’s your cap or limit. And that’s the same, that’s always been the same.

What’s new or different for 2021 is for cash gifts. The cash gift deduction limit is 100 percent of adjusted gross income, which is a pretty big deal. Now, again, when this expires December 31, unless the law is extended or changes, the limit is normally 60 percent of adjusted gross income, so we have 100 percent deduction limit.

Bill, that represents a huge opportunity for charities during 2021 to promote gifts of cash this year. And so, for example, if you have donors with significant pledges, you could encourage them to accelerate the pledge; that is pre-pay all of their pledge amount this year to take full advantage of that 100 percent of AGI deduction limit. Now that’s only if they pre-pay with cash, not stocks. So, that’s an important distinction to make.

BS: Phil, that is a very important distinction that candidly is not out there quite as much in the press and the philanthropic media about that difference between cash and non-cash gifts as it relates to donors who itemize. Now you’re a fundraiser and you have all this legal expertise as well.

What advice do you have for fundraisers on how they should be talking about this with their donors? Of course, every donor is different. Different donors have different motivations. Taxes matter more to some and not as much to others. Do I bring this up in my first conversation? Do I include this in my direct appeal for my annual fund? What types of techniques are you recommending to fundraisers?

PP: Well, I do recommend that you talk about it early in the conversation, primarily because these are time-limited, and people need time sometimes to figure out what they want to do and how they want to do it. The earlier you get ideas in front of them, the better. So, using direct mail, informational mailings, email blasts, and in your personal one-on-one conversations, I would say it’s important to get it in front of them.

And you know, Bill, the timing of this podcast is important because, around April, it’s tax time. Now, the die is cast for 2020. We can’t unfortunately make any changes to affect the tax return we’re filing by April 15, or if you have extensions later this year, but it does prompt people to think about what they did or did not do that they might do differently. And so this is a good time to talk taxes. This April, around April, is a good time because people are thinking about it.

And so I would say this is a leverage point that fundraisers can use to bring up the issue of taxes. And while they’re important and … hey, if you ask people, “What are your motivations for giving?” Usually talk of taxes or tax benefits are not mentioned in that top list. But down deep, taxes do have an impact, and they particularly impact the timing and size of the gift.

And so this 100 percent deduction limit, it affects both timing and size of gift because it’s time limited and it’s 100 percent of AGI. We may not have that in the future, and so pre-paying those pledges could be a really big deal.

BS: And, Phil, there’s also the policy that has been changing in the last year or two related to our seasoned citizens. And I know there’s a tax implication there. My understanding is primarily we saw a change in the age involved. It used to be our donors who are 70-and-a-half, and now it’s our donors who are 72-and-a-half.

As they have these required mandatory distributions from their retirement accounts, that they need to pay tax on, unless they use that money for charitable giving. What’s the latest on that policy, and how can fundraisers be communicating that to their donors who are in that season of life?

PP: That’s a very good point, Bill. The minimum distributions from IRAs were formally required to start at age 70-and-a-half, and that’s been increased to age 72. But the IRA charitable rollover, or in the law it’s called the qualified charitable distribution, QCD, still remains available at age 70-and-a-half. So, even though they’re not required to take the RMD, or required minimum distribution, until age 72, they can still do an IRA charitable rollover or QCD starting at age 70-and-a-half.

Now, this is a wonderful opportunity that’s really picked up steam over the last few years and only getting bigger, right, because we’ve got all this baby boomer generation, this glut of boomers, myself included, who are getting close or above age 70-and-a-half.

Now remember that the IRA charitable rollover does not qualify for a charitable deduction, but it does escape income tax liability. See, these retirement plans grow tax free and you owe income tax when you draw the money out. But with one exception, you do an IRA rollover, no income tax liability, which is basically the same tax net effect.

And, in fact, it’s even better because a lot of these elderly folks, they’re not itemizing. They’re probably not going to claim a charitable deduction, but the IRA rollover, it doesn’t matter. Why? Because they’re escaping the income tax liability, and whether they itemize or not is irrelevant.

BS: And, Phil, is there a ceiling? Is that up to … was it $100,000?

PP: It sure is. It’s $100,000 per IRA account holder. And IRAs are individually owned, they’re not jointly owned by a husband and wife. So, if you’re married, each spouse can give up to $100,000 per year.

BS: Great advice. And one thing I’ve always wondered is, if we do receive that gift from that seasoned citizen out of their retirement fund, the gift, the check, the dollars, the electronic transfer actually comes from the retirement fund firm. The money doesn’t go to the individual who then sends it to us at the nonprofit.

As fundraisers, what do we need to be keeping our eyes open for in that regard so we can send a thank you note and conduct the proper stewardship afterwards? Because retirement fund, ABC doesn’t really want our thank you note, right?

PP: They sure don’t. And it is an administrative important point that charities have to figure out, and it’s a communication opportunity with your donors. There are two ways, the IRA rollover can come by a cash wire from the custodial IRA account, but it’s got to come directly to charities account number that charities banker broker. It cannot be withdrawn from the donor’s IRA account and then to the donor’s checking account, and then donor to charity. That will disqualify the tax savings. It’s got to come direct.

So the charity, new charities, can have wire delivery instructions ready to go to give to your donors or have you send it directly to their IRA custodian that has the wiring instructions, basically the wiring number and account number to wire to.

And then furthermore, you need to put big, black, bold font to be sure to indicate either the donor or the custodian directly to and identify the name, phone number, email address of the staff member of the gift on its way, because it’s cash coming without necessarily the name of the donor. So, you’ve got to notify everybody that we need you to let us know the donor is making, what donor is making this gift.

Another point is that these rollovers can also be done by check, if it’s a checking account on the IRA. Some IRA custodians offer their clients checkbooks that are only drawing checks from the IRA. It’s not a personal checking account, it’s an IRA account. So, sometimes you can get this kind of check.

Now, the check will say probably at the top, “IRA custodian account for Bob Smith,” let’s say, so you’ll know it’s an IRA rollover probably when you see a check that says the name of the IRA custodian on it. It’ll look different than a normal personal checking account checkbook.

BS: And again, part of your conversation with your donors to make sure that they understand that this is available to them, a lot of those retirement plan holders include this information to their customers, they’ll put a little form saying, “Hey, it’s time for that mandatory distribution. Would you like to send some to charity? Here’s the form and tell us how to do that.” Right?

So, the mechanics are there. We just need to make sure that our fundraisers and our donors are fully informed. Phil, so much good information today. What other advice do you have for fundraisers as we think about 2021, maybe beyond? Federal tax policy can stay the same, it can change, a lot of information out there, what do fundraisers need to be keeping an eye on with this topic overall?

PP: Well, there’ll be two things I would mention on this score, Bill. The first is, there is a pending bill, the charity world has long been talking about this universal deduction and maybe making the universal deduction even bigger.

So, there is some pending legislation, the Universal Giving Pandemic Response and Recovery Act, that increases the deduction limit from $300 individuals, $600 married couple, to $4,000 individuals and $8,000 for a married couple. That’s pretty significant. Now, this pending bill is also time limited, it would only be for 2022. It’s not a permanent, but it is an extension time-wise and in a limit. But it’s not passed, it’s just pending.

The other thing this bill would do, and it leads to my second point, is that it would not only increase the limit for these universal deductions but allow the universal deductions to apply for gifts to donor-advised funds. As many folks in the charity world know, giving to and grants from donor-advised funds are huge and only getting bigger.

But under the current law, these universal deductions, as well as the 100 percent deduction limit for cash gifts, do not apply for gifts to donor-advised funds. Furthermore, you cannot do an IRA charitable rollover to a donor-advised fund. So, there are some limits on DAS. Well, this bill that’s pending would allow these increased universal deduction limits to apply to donor-advised funds. Those are things, I’d say, for folks to keep an eye on.

BS: And so when you’re meeting with your member of Congress, your US senator, going to those town hall meetings, electronic town hall meetings, now you’re informed and can share that information as you best see fit. Some people think, “Will it ever really come back?” We have the universal charitable deduction for many, many years, went away with the 1986 tax reform at the federal level, so that just shows you the pendulum can swing back and forth from time to time.

Also, in the meantime, take advantage of what is available now with the universal charitable deduction and these withdrawals from retirement funds that have some charitable considerations attached to them. And if you did not know before, you now know why when I have a legal question about fundraising and charitable giving, I reach out to Phil Purcell.

And you can see his expertise here, which is on display as a member of our faculty at The Fund Raising School in many ways, but including and especially in our course on planned giving, with a lot of good detail for you to get your arms around. And the data show that because of the pandemic, more and more donors are expressing an interest in planned giving.

The survey from the folks who are an association of fundraisers for planned giving, their recent survey demonstrates that there is a greater interest in planned giving, and you can learn how from this course at The Fund Raising School, designed and taught by Phil Purcell.

BS: Now, all of our public courses, some of them are available in person, we’re expanding the number of cities as local and state and federal health codes allow us to do so. And all of our courses are available online, many of them recorded, some of them live. And all of them you can still apply for a Crisis Response Scholarship that will reduce the cost of registration by 50 percent.

We have our quarterly webinars, we often get together once a month for Fridays with The Fund Raising School. And, of course, these free podcasts, all available online. I’m Bill Stanczykiewicz, and now you are now more fully informed on this First Day from The Fund Raising School.