Fidelity, Los Angeles. (AP Photo/Richard Vogel)

A quick guide to the economics of charitable giving pools from Fidelity and other brokers.

You’ve got three weeks left under the old tax system. Should you pull the trigger on a donor-advised fund?

The answer depends on your income, your level of giving and your willingness to let middlemen pocket some of the dollars. For a lot of taxpayers, the right answer is yes.

The tax cut underway in Congress is still up in the air and might remain there until the end of the year. But it seems likely to pass, and very likely to include changes in itemized deductions that will make philanthropy more expensive. So maybe you should accelerate your deductions for charitable donations.

A so-called donor-advised fund is a way to do that. You contribute a certain amount of cash or securities — a minimum of $5,000 at Fidelity or Schwab, or $25,000 at Vanguard—and get an immediate tax write-off for that amount. The money is invested the way you want. Then you decide later what charities get it and how fast. You can take your time. In effect, you are stuffing years of giving into the 2017 tax year.

Both the House and Senate versions of the tax bill retain an itemized deduction for charitable donations. But they undercut it. The likely changes elsewhere in the legislation will make the charity deduction useless for a lot of taxpayers.

The big changes for the individual income tax, besides some fiddling with the rate schedules, are these: a couple’s standard deduction will be almost doubled to $24,000 (or thereabouts), and the deduction for state and local tax will be capped at $10,000.

If you have a big mortgage, your deductions for interest plus the $10,000 may put you past the $24,000 goal post. Beyond that point, any deduction for charitable donations will be valuable, probably worth between 22 and 40 cents on the dollar.

If you don’t have a mortgage, though, or if it’s small enough that your interest deduction is less than $14,000, then you will probably be taking the standard deduction. Donations that would reduce your tax in 2017 will become worthless in 2018. Hence the need to front-load your giving.

The big drawback to using a donor-advised fund is the cost. In the examples below, you’ll see fees running between 4% and 11% of the amount donated. You might be willing to let the broker get richer in order to make the U.S. Treasury poorer. You might not.

Case I: middle income, no mortgage.

The Smiths have an income of $200,000 and enough deductions to put them in the 28% bracket under current law. They set up a $10,000 account at Fidelity’s Charitable Gift Fund, claiming a deduction that saves them $2,800 on their federal tax bill.

The Smiths parcel out $1,000 a year to their church. If we assume that they opt for the cheapest index fund and that stocks return 5% a year, the church will get $12,356 over 13 years. Fidelity will pocket $1,311. Most of that is from its annual fee for maintaining a gift account: 0.6%, with a $100 minimum.

Instead, the Smiths could open a $10,000 taxable account and use what’s left of that after capital gain and dividend taxes to fund the church donations. They’d get no deductions for their generosity because they’d be taking the standard deduction.

With the taxable account they could give more: $13,318 over 14 years. Although the index fund available would be slightly more expensive, and the account would be damaged by taxes, the church would come out ahead by $962 because the taxable account has no $100 maintenance fee.

There’s your trade-off: lose $962 down the road in order to come out $2,800 ahead today.

Case II: high income, no mortgage.

The Joneses earn $360,000 and plan to donate $10,000 a year. Despite their high income they will be taking the standard deduction because $10,000 plus $10,000 is less than $24,000.

They set up a $100,000 gift account at Vanguard, claiming a deduction worth $33,000 this year in their 33% bracket. Over 14 years the gift account would fuel $133,846 in donations. It would deliver $134,444 at Fidelity, whose fees are slightly lower.

This is a clearer win for the donor-advised fund. The give-up to the middleman, in the neighborhood of $5,000, is a smaller fraction of the disbursements.

Case III: big mortgage.

The Richardsons make $480,000. They owe $500,000 on their house, and the interest runs to $20,000 a year. With state and local taxes thrown in, they will be well over the standard deduction threshold. So their charitable deductions in 2018 and later will not go to waste. In fact, those deductions will become more valuable because the Republican tax plan (either the House or Senate version) will kick up their tax bracket from 33% to 35%. They don’t need a donor-advised charity.

Ready to make a transfer to a charity fund? Two caveats.

One is that contributions to charitable gift funds are irrevocable. If there’s any chance you will be in a financial bind in a few years, pay-as-you-go philanthropy may make more sense.

The other is that charities are just waking up to the fact that the Republican tax plan will do a lot of damage to their fundraising. They may persuade either this Congress or a later one to soften the blow by lowering the standard deduction and/or allowing taxpayers to claim both it and a deduction for donations.

Click here to see the full Forbes list of America’s Top Charities 2017.

Originally published at Forbes

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