STRATEGIES ON CHARITABLE CONTRIBUTION TAX BENEFITS
It’s been a little over 2 years since the Tax Cuts and Jobs Act of 2017. You may have noticed in the past 2 years whether its beneficial for you to itemize income tax deductions or claim the dramatically increased standard deduction. If you haven’t benefitted from itemized deductions, there are a few strategies available which could make a difference in your tax deductions.
Should I itemize?
Your total itemized deductions including state income taxes, real estate taxes, mortgage interest, charitable contributions, etc., must exceed these new increased standard deduction thresholds (ex. $24,000 for married, filing jointly). There are also restrictions on caps of allowable deduction for state/local income taxes and real estate taxes. Mortgage interest is also limited, and equity loan interest is now eliminated from tax deductions.
The higher standard deductions combined with these restrictions and limitations will reduce the number of taxpayers who will itemize their deductions. Generous taxpayers who may not be able to itemize their deductions on an annual basis should consider three primary strategies that may allow them to capture at least some tax benefits from their charitable contributions.
“Bunching” charitable contributions
This helps by capturing charitable deduction benefits every few years
Some taxpayers may benefit from bunching two or three years of charitable contributions into a single year in an effort to exceed the standard deduction threshold for that year, and then taking the standard deduction in subsequent years. Even if you exceed the $24,000 each year for tax deductions, you also could potentially have beneficial tax implications by “bunching” your charitable contributions.
If you have the resources to do so, you may have some concerns about the organizations you support on a regular basis (annually, monthly, etc.). How will they maintain budgets and programs every year, if I bunch my giving every few years? These organizations cannot defer their expenses until bunched contributions come in. Using a Donor Advised Fund (DAF), can resolve this concern. There are multiple DAF sponsors to choose from (National Christian Foundation, The Signatry, Greater Kansas City Community Foundation, Fidelity Charitable Trust, etc.). These DAF sponsors are tax exempt organizations and will give you a taxable contribution statement for the year you pay into the fund. Then the DAF can/will distribute on a regular basis or upon request to your cherished organizations of choice. This allows you to get your bunched tax deduction and not adversely impact your charities of choice. In addition, DAF dollars are invested, accrue tax-free, and can generate additional funds for your favorite charities. Please discuss with your accountant or tax advisor to see if this strategy would be right for you. Here is a 2 minute video explaining as well:
Gifts of appreciated publicly traded stock
This helps by eliminating capital gains tax
Gifts of appreciated publicly traded stock and mutual funds that have been owned for more than a year is a tax-leveraged asset to give, allowing you to capture a “double” tax benefit. Not only do you qualify for a charitable income tax deduction, but you and the charity avoid capital gain tax when the stock is subsequently sold. Even gifting portions of a family business or real estate holdings can have similar benefits. Giving these assets can similarly provide significant capital gain tax savings upon an ultimate sale.
You can gift your investments/holdings directly to a DAF and they can sell and distribute funds to your charity of choice. Most any DAF can execute such transactions. If you do not have a DAF, The Hope Center, would direct you to our partner, National Christian Foundation, to facilitate such a gift. Another short video about gifting investments/holdings:
Qualified IRA charitable distributions
This helps by avoiding income tax on distributions from an Individual Retirement Account (IRA)
For donors over the age of 70 ½, a Qualified Charitable Distributions (QCDs)/Rollover from an IRA is an attractive giving strategy for many taxpayers, especially taxpayers who don’t itemize deductions. If distributions are made from an IRA directly to a qualified charity, you avoid income tax on QCDs, and the distribution counts toward your required minimum distribution.
Tax Strategies allow more funds for Charity
We know your gifts are from the heart, not primarily for tax deductions. Careful use of tax strategies can help generate additional funds which could benefit your favorite charity. To get more details about how these can impact you, please see reference below.
We recommend you discuss these options with your accountant or tax advisor to see if they are beneficial to you. The Hope Center is happy to connect you to a DAF organization, if needed. Just email Janice Taylor, firstname.lastname@example.org, for questions/referrals.