by Rich Herrera
The end of the year signifies the arrival of the season of giving. While you’re busy growing your heart size by a factor of THREE in spreading meaningful holiday cheer, it’s worth considering how your generosity will affect your overall tax bill for 2019. The 2017 TCJA tax bill made some changes that could affect your donation strategy before 2019 ends.
SIGNIFICANT CHANGES
The amount of deductible cash contributions increased from 50% to 60% of your income for the year. This is a fairly simple change that is a substantial benefit to taxpayers who are extremely generous; it allows more of your donation to be deductible.
For many years, your itemized deductions (including charitable giving) were reduced by 3% for every dollar above a high income threshold. The 2017 tax reform eliminated this law, making your qualified contributions more valuable for the foreseeable future since they are now fully deductible.
The combination of a higher standard deduction and lower tax rates across the board means that itemized deductions aren’t advantageous for many taxpayers; this also means that the tax savings previously available for charitable contributions are less likely to be realized unless you engage in some tax planning.
COURSE OF ACTION
One strategy you should consider is bundling donations. A bundling approach consists of combining multiple years’ worth of donations into one tax year, in order to exceed the standard deduction. You could then take the standard deduction in the other years.
Another related, useful strategy could be to set up a donor-advised fund (DAF). This would allow you to donate stocks and other securities and deduct the full amount of their fair market value while avoiding the capital gains tax in one year. In subsequent years, you still maintain general control over the funds over time while you decide which charities will receive donations from your DAF. You can even involve other family members in the process to inspire charitable giving to future generations.
Don’t let the increased complexity of charitable contributions turn you into a Grinch. Contact us right away if you’d like help! We’ll help maximize the benefit your donations have, not just to your chosen charities, but to yourself as well. That’s a real win-win for the holiday season!