It’s that time of year where when many people can feel extra generous. The holidays have a way of bringing out the inner philanthropist. If charitable giving is something that you have included as part of your overall financial planning strategy, then you know that now is usually the time to make sure you make any final contributions and distributions to your favorite causes and charities. However, under the new tax laws, the playing field has changed a bit and you may need to rethink how you give.
Despite the new Tax Cuts and Jobs Act (TCJA) that reformed the tax code as we knew it, there are still tax advantages for your generosity. And while the tax deduction is not the leading reason why people give to charity, it has certainly been a welcomed benefit of choosing to give away some of your hard-earned money.
Here are some creative ways you can give this season and still maintain some tax benefit.
“Bunch” Your Contributions
The new tax law doubled the Standard Deduction from $6,350 to $12,000 for Single and Married Filing Separately tax filers, $9,350 to $18,000 for Head of Household filers, and $12,700 to $24,000 Married Filing Jointly filers. The TCJA also capped state and local tax deductions at $10,000. This means that most people, unless they have itemized deductions in excess of their Standard Deduction, will likely take the Standard Deduction.
“Bunching” your charitable giving donations means that you consolidate your donations into certain years instead of every year. That way, in those years that you “bunched” your charitable giving you would exceed the Standard Deduction threshold and itemize on your tax return in that targeted year.
Handy Dandy Tool: Use a Donor Advised Fund (DAF) to save toward your favorite charity, and then set the date when the funds will be released to your charity or charities.
Prioritize Your Charities
The new tax laws affect different types of non-profit organizations differently. Therefore, understand how the tax changes apply. For example, if you make donations to an alma mater that makes a profit from selling athletic tickets, your donations will no longer be deductible. IRS Sec 170(1)(2).
It will be good to know how and if the new tax law affects your charity or charities specifically. This doesn’t mean that you stop making donations, but it does mean that you make donations without the expectation that there will be any tax benefit (or as much) for specific ones.
You may want to prioritize the ones that offer the greatest tax benefit from a financial planning perspective.
Donate Other Resources
Generosity comes in many forms, and it doesn’t have to be cash. Consider contributing your precious resource of time. Charities are usually always looking for volunteers, especially this time of year.
The new deduction rules still apply, so you won’t be able to deduct expenses you incur volunteering like gas or mileage or other out-of-pocket expenses if you take the Standard Deduction. That being said, if you plan to bunch your monetary contributions every other year, you could also plan to donate more of your time in those years you don’t make a contribution.
Charitable giving has traditionally doubled as a way to optimize an already proactive tax-efficient investing strategy. The new tax laws may seem to offer less financial incentive on the surface. However, by simply adjusting how and when you give can help you maintain your commitment to your charities and causes while also receiving the greatest tax benefit that is allowed under the laws.
If you are wondering what the best way you can continue to give under the new tax laws, be sure to reach out to your tax professional for guidance.
NEXT FRANKLY SPEAKING POST…
Speaking of taxes, you won’t want to miss the next FRANKly SPEAKING post where we cover the tax moves you should make before 2019!
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