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Into the Great Unknown: How Election Outcomes Could Impact Charitable Giving

As humans, we crave certainty, especially when it comes to planning for the future. However, certainty is in short supply right now, especially during election season when tax policies can shift depending on who takes office. For advisors and clients who support charitable causes, the uncertainty surrounding potential tax law changes adds an extra layer of complexity. How will the results of the upcoming elections impact philanthropic plans?

The truth is, no one has a crystal ball. Predicting tax law changes is impossible, and even after the election, there will likely still be unanswered questions. So much can happen between proposed policies and what is eventually enacted into law. However, it’s still helpful to explore where the proposals are trending and how different outcomes could influence charitable giving. Let’s take a high-level look at potential tax changes and their impact on philanthropy.

Capital Gains Tax

Donald Trump has not yet formally proposed any new policies regarding capital gains taxes.

Kamala Harris has called for increasing the top long-term capital gains tax rate to 28% for individuals with taxable incomes above $1 million. If enacted, this could incentivize high-net-worth individuals to donate appreciated assets to charitable funds or foundations, allowing them to offset the tax burden while supporting their philanthropic goals.

This shift could lead to an increase in donations of highly appreciated assets to charities like the community foundation, where donors can take advantage of the tax benefits while giving to the causes they care about.

Income Tax

Trump may seek to make the income tax cuts from the 2017 Tax Cuts and Jobs Act permanent. These cuts are scheduled to expire, but extending them would maintain the current tax brackets and higher standard deduction, which some argue has discouraged charitable giving by reducing the number of taxpayers who itemize their deductions.

Harris has proposed expanding various tax credits, though it remains uncertain whether she would allow the current higher standard deduction to expire as scheduled. If the higher standard deduction continues, it could continue to impact the frequency of charitable donations, as fewer people would need to itemize deductions.

Ultimately, whether the higher standard deduction remains in place could influence future charitable giving. If fewer taxpayers need to itemize deductions, charitable donations may be less frequent and impact the overall philanthropic landscape.

Estate Tax

Trump has signaled that he intends to prevent the expiration of current estate tax cuts, which have significantly raised the estate tax exemption. This would allow individuals to transfer more wealth to heirs without being subject to estate taxes.

Harris appears to favor increasing estate taxes, perhaps aligning with President Biden’s Fiscal Year 2025 Budget Proposal. That proposal includes tightening estate tax rules and reducing the estate tax exemption. If estate tax exemptions were lowered, wealthy taxpayers would face a stronger incentive to make large charitable gifts and bequests to reduce their taxable estates.

A change in estate tax policy could have a significant impact on charitable giving among high-net-worth individuals, who may seek to reduce estate taxes by making charitable contributions through donor-advised funds, charitable remainder trusts, or other giving vehicles.

It’s Not Just the Presidential Election

It’s important to remember that tax law changes depend not only on the outcome of the presidential election but also on the makeup of Congress. The balance of power in both the House and Senate will be key to determining what tax policies are passed and how quickly any changes might be implemented.

Stay Informed and Ready

At the Athens Area Community Foundation, we stay on top of legal and tax developments that could affect your clients’ charitable planning strategies. While no one can predict exactly how the election will shake out, our team is always here to provide guidance and insight. We’ll keep you informed of any changes that could impact philanthropy, both during the election season and throughout the year.

As election results unfold and new policies are proposed, rest assured that we will continue to support you and your clients in navigating the complex landscape of charitable giving.