The introduction of the $24,000 (for couples) standard deduction changed charitable giving for many Americans. Many taxpayers using the higher standard deduction no longer saw their taxes reduced by charitable giving. That may be the reason that growth in charitable giving was “virtually flat” in 2018 and declined when adjusted for inflation (see Giving USA 2019).
Tax savings may not be your primary motivation for charitable giving, but it does make sense to save on taxes when you can legally do so.
Here are four strategies for you to consider.
Idea #1: Make Qualified Charitable Distributions (QCDs)
If you are over 70 ½ and have an IRA, you can direct all or part of your Required Minimum Distribution to a charity. The amounts you direct will not be taxed as income to you. The amount must go directly from the custodian to the charity; the limit is $100,000. Many custodians make this very easy for you with an online form.
Idea #2: Donate Highly Appreciated Securities
If you have highly appreciated securities in your taxable account, you can donate them to a charity, and the value of your donation will be the full market value, regardless of your cost basis. Even if you don’t get an income tax deduction, you still are transferring the full value of the gift to the charity, without having to pay capital gains taxes.
It is possible that your favorite charity may not be equipped to handle gifts of stock, so one option is to use a donor advised fund when gifting stock (see Idea #4)
Idea #3: “Bunch” your donations in a particular tax year.
In 2019, the standard deduction is $24,400 for couples filing jointly and $12,200 for single filers. Depending on your giving habits and your other Schedule A items, itemizing your charitable donations may not have an impact on your tax bill. However, you might look at “frontloading” the amount you typically give over a few years into one year to make a big enough impact, and then go a few years between gifts.
This is also a worthwhile strategy if you are anticipating an unusual year for income, such as the sale of a business.
Idea #4: Use a Donor Advised Fund (DAF) to aid in gift bunching and administration.
A donor advised fund is an IRS-approved entity that accepts charitable donations and distributes them according to your wishes. You can donate (and receive the tax deduction) in one year and make distributions to many charities of your choice over time. They can accept cash or stocks, and even some more illiquid securities.
The DAF will provide consolidated record-keeping, so you will have one report for tax purposes each year (and you’ll never miss another small donation in your totals.)
You can even designate a successor donor, if you wish to pass on the giving habit to your children or other heirs. Many DAFs provide events and tours for their donors.
We are not authorized to give legal or tax advice but are happy to assist you and your tax advisor to decide whether these strategies make sense for you. Please contact us to talk about your charitable intentions.
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.