Consider Benefits of Year End Giving
We regularly work with local partners in several areas to carry out the philanthropic work of our community. From generous donors and financial advisors, to educators and nonprofit organizations, we couldn’t do our work without them. Sometimes one of our partners is the best person to speak about topics in their field of work. Today’s blog is from Tax and Business Advisor Carrie Grey, of SCA, an ARGI Company.
Yearend is often the most popular time of year for giving, including donating to our favorite charities. To make an educated financial plan, we must consider the tax benefits that come along with charitable giving.
More times than not, people already know how much money they want to donate to charity before coming to me. As tax advisors, we can leverage that generosity and turn it into tax savings for our clients. Since the implementation of the new Tax Cuts and Jobs Act, we have access to more strategic options that can optimize the tax benefits of charitable donations.
So how does this all work? First, we consider the amount of annual charitable donations the client normally makes. If, the amount is close to the annual standard deduction, we advise people to consider using a strategy called “bunching.” In essence, an individual gives double what they normally would in one year while foregoing donations the next. Thereby they would receive full use of the standard deduction in the “non-donation” year.
For example, if you and your spouse normally give $15,000 in donations, and do not itemize for tax purposes, you’re not receiving a tax benefit for that donation. This is because the standard deduction ($24,400 for 2019 and $24,800 for 2020 for married filing jointly) is greater than your total itemized deductions. So, whether or not you make that $15,000 donation, you’re in the same tax position for federal tax purposes. Over the two years you receive a tax deduction of $49,200 – the two years of standard deductions.
Now, let’s assume you make a $30,000 donation in 2019 and $0 in 2020, and you itemize in 2019. If you own your home and have real estate taxes and mortgage interest, your itemized deduction will be greater than just your $30,000 donation. And in 2020, you’ll utilize the standard deduction. In this scenario, over the two years you will receive a tax deduction of over (due to the additional itemized deductions you likely have) $54,800.
If you prefer charitable organizations to receive donations on a periodical basis rather than in a lump sum every other year, you can use a donor advised fund. The donation for tax purposes is documented WHEN you fund the account. However, you manage when and to whom those funds are issued. So, you can make your $30,000 donation to a donor advised fund and instruct an administrator, such as Central Kentucky Community Foundation, to issue monthly checks to nonprofit organizations in the amount and frequency you wish.
Another impactful strategy available to donors is to use appreciated assets. This is for assets such as stock or real estate, that have been held over one year. When these assets are donated through CKCF or a charity, you not only receive a tax deduction, but you get to avoid recognizing capital gains on that appreciation. Best of all, your charity receives the full market value of the asset, not the net of tax cash value! Lots of rules apply here, so we recommend you consult with your personal tax advisor before utilizing this strategy.
For my older friends and clients who are required to take minimum distributions from their IRA, I recommend making all charitable donations from these accounts. Charitable donations directly from an individual’s IRA are referred to as a Qualified Charitable Donation (QCD). This is another way to get more ‘bang for your buck’. Through this strategy, you reduce your adjusted gross income, which increases the benefit of the standard deduction, and often affects other tax calculations in a positive way. You can make donations up to $100,000 per person through a QCD.
With the end of the year upon us, if it’s not timely to take action on these strategies for 2019, it’s never too early to think about 2020 and your charitable giving plan.
We understand everyone’s situation is different, and there are other limitations and regulations to consider. We advise anyone considering these strategies to make an appointment with their tax advisor. And since we are discussing impactful decisions, choosing to utilize the services of your local community foundation provides several benefits. As experts in philanthropy, they can be trusted to help you navigate through your philanthropic giving objectives AND you will be supporting their organization; an organization that focuses on doing good in our communities – a win-win for everyone!
Respective services provided by ARGI Investment Services, LLC, a Registered Investment Adviser, ARGI CPAs & Advisors, PLLC, SCA CPAs & Advisors, PLLC, ARGI Business Services, LLC, and Advisor Insurance Solutions. All are affiliates of ARGI Financial Group.
When you want your life to make a difference FOREVER…
…you need a FOREVER partner.
Central Kentucky Community Foundation has a long history of serving this community through 52 years as North Central Education Foundation.
Today, we offer you even more options to help your dreams make a difference…FOREVER.