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Your Alma Mater Or Your Family?

Please note that the reader should discuss all strategies stated below with their accountant and/or legal advisor before implementing any of the below listed strategies:

 

Legend Financial Advisors, Inc.®(Legend) is not a tax or legal advisor.  It is Legend’s intention to merely present ideas and strategies to readers to discuss with their own tax and legal advisors or in conjunction with Legend’s advisors.

 

The new tax law doubles what readers can leave loved ones’ tax-free when they die.  Unfortunately, that’s really bad for their alma mater.  Tax breaks for donations to one’s alma mater may no longer make the grade.  Here’s why:

 

Estate Tax Exemption Rises:

 

The Tax Cuts And Jobs Act doubles a married couple’s estate’s tax-exemption to $22 million.  Alumni may now want to maximize their exemptions by leaving $22 million to their children, nieces, nephews and other loved ones before even thinking about a donation to their favorite old schools.

 

Larger Standard Deduction:

 

The Tax Cuts And Jobs Act upped the standard deduction from $13,000.00 to $24,000.00 for married couples.  Most Americans no longer will itemize deductions.  However, that also means many individuals can no longer deduct college donations.  As a result, younger alumni will never get into the habit of contributing to their alma mater, which will disrupt the finances of U.S. educational institutions.

 

Athletic Deduction Nixed:

 

Before The Tax Cuts And Jobs Act, many colleges targeted contributions from alumni who might qualify for good seats at games.  The old law allowed donors to deduct 80.0% of such gifts.  Now, the deduction is zero.

 

Taxing Endowments:

 

Under the new tax code, schools with endowments of $500,000.00 per student or more and 500 or more students face a 1.4% levy on income.  Only a small number of schools are subject to this new tax, but it is a consideration in making college donations.

 

The Plus Side:

 

The Tax Cuts And Jobs Act is not entirely bad for all education-minded donors.  Some pluses:

  • If one were to itemize, up to 60.0% of one’s adjusted gross income on donations to qualified charities, including the donor’s old school.  That’s up from 50.0%.

  • Donations can be bunched if a pledge is given over several years.  The deduction can exceed the write off under the standard deduction.

  • A contribution via a donor-advised fund entitles a donor to a large immediate deduction on annual donations if they are pledged to be made over a period of years.

 

Old Ivy has been around since before the income tax and has managed to flourish, but the new economies of supporting education is disrupting the finances of major educational institutions, and the effects are yet to be felt.



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