How To Maximize Your Charitable Giving Tax Benefits

By Ryan Johnson, Wealth Management Partner

Many consider making charitable contributions during the holiday season. With the new tax rules established this year, you might want to consider if your giving strategy should be tweaked.


What changed with tax reform that would affect my giving strategy?

The standard deduction was nearly doubled ($12,950 for singles and $25,900 for married filing jointly). You also have a $10,000 limit to deducting the combination of property and state taxes. With these changes, many people who previously itemized will now take the standard deduction. By using the standard deduction, you cannot deduct the funds given to charitable organizations.

Bunching Charitable Contributions for Tax Benefits

Some people are choosing to make a larger than usual contribution in one year. They are doing this by combining several years of “normal” contributions into one year to surpass the threshold of itemized deductions.  In following years, these people are skipping or limiting their charitable donations and taking the standard deduction.

Using a Donor Advised Fund (DAF) in Your Charitable Giving

A donor-advised fund also allows you to make a contribution that surpasses the threshold of itemized deductions ($12,950 for singles and $25,900 for married filing jointly). You can take the deduction in the year you make the contribution (for a cash contribution you can deduct up to 60% of your adjusted gross income). You can then choose when you distribute the funds (and to which charities) over time (it does NOT have to be within that year). You can also choose how the funds are invested and potentially grow the amount of funds you ultimately distribute (without a tax penalty on the growth). And the icing on the cake? Some people choose to invest in companies based on environmentally sustainable policies or social impact. “There’s increasing interest in impact investing, as investors realize that their money can work for good causes, even before they make a grant, says Amy Pirozzolo, vice president of Fidelity Charitable, a donor-advised fund, which has introduced three new impact-investing options.”*

Another added bonus is that you can make contributions to this fund with more complex investments like publicly traded securities, privately held S-Corp shares, real estate, etc. Many times charities are not set-up to be able to receive these kinds of contributions. When you make this kind of contribution to a DAF, you can then avoid paying capital gains tax AND take an additional income tax deduction in the amount of the full fair market value of the asset, rather than the cost (up to 30% of your adjusted gross income). This is a great way to reduce taxable income and maybe even reduce your tax bracket if you have had a big income year.

Donor-advised funds are straightforward to open and usually require a minimum initial contribution (typically $5,000). Work with your financial adviser if you think this strategy might fit your needs.

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