There are many principles that guide American’s charitable giving habits. From the flows of the economy, to rising political issues, to increase in social status, to a genuine desire to give back, these reasons are found to fluctuate with time and the changes that time presents. Since 2009 (after the great recession of 2008) our economy has seen a steady increase of giving per year.
For many families, charitable giving is a built-in part of their yearly financial goals. But the new tax code presents unique challenges to donors’ tax benefits from their gifts. I’d like to lay out some creative strategies for you to consider when you make your charitable donations this year.
Often, taxpayers find that they receive tax benefits when they itemize deductions oin a given year. This strategy has been standard for charitable giving for many years, but the new standard deduction has caused people to alter their course.
For 2018, the standard deduction has nearly doubled. This law requires itemized deductions for a person filing as single to exceed $12,000. This is a $5,650 increase from the initial $6,350 requirement. Those filing jointly must reach an amount of $24,000 in itemized deductions, up from the previous $12,700.
According to CNBC, 46.5 million households itemized deductions in 2017 and that number is projected to decrease to 18 million this year. Itemizing deductions is the primary way people receive tax benefits from charitable giving, and without this option many financial analysts project a decrease in charitable giving.
But the shift in the tax code does not have to hinder your giving and your taxable benefits, you just have to think about new ways to give.
New Giving Strategies
Instead of reducing your charitable gift and forfeiting the tax benefits that accompany it, I have outlined a few different strategies you might consider this year.
- This strategy capitalizes on the combination of your itemized deductions. For example, you may consider gifting a charity double the amount you would often give in order to itemize the deduction on your taxes. You can also stipulate that the funds you provide are to cover a two-year period, which will still offer the same level of support to the charity while allowing you to itemize deductions every other year.
- For example, if you give $7,000 per year to a charity, consider giving $14,000 in one year to be used throughout the two year period.
- Many people don’t realize that they are able to give appreciated assets such as stocks or mutual funds to charities as gifts. This is a great idea for the tax-conscious public, as it will allow you to avoid paying capital gains tax on the appreciated asset and you can claim the full value of the asset as a charitable deduction.
- You should avoid giving assets that have lost value as you will end up paying more in taxes. It is better to take the loss than to gift an asset that has lost value.
- Donor-advised funds can be a great option. With this fund, donors make a larger donation in one tax year which lets them itemize the deduction. Unlike the bunching strategy where you may not give each year, in the years where your gift is not large enough to be itemized, you can still contact the administrator of the donor-advised fund to funnel the money into the charity of your choice, which continues your yearly monetary support.
Qualified Charitable Contribution (QDC)
- If you’re over the age of 70 ½ and have a retirement plan, you’re all-too-familiar with Required Minimum Distributions (RMD). Did you know you can gift all, or a portion, of your RMD directly to a qualifying charity? There are a few rules, outlined in this article, but QDCs are a great way to make charitable contributions for those over age 70 ½.
Should You Still Give?
The short answer is yes! I am a firm believer in giving back through charitable contributions, advising my clients to give 10% of your after-tax salary to charities. One of the reasons I am steadfast in my belief in this is that charitable giving has been a huge part of the American economy since its founding. Giving is a way for you to positively impact the causes you care most about.
The way you save money on taxes through charitable giving might have changed as a result of the tax law, but there are many strategies available to maximize the impact of your gift. If you would like to talk more about the tax code and how it will affect you personally, I would love to talk with you. Let’s come up with a plan, together!