Will the New Tax Law Affect Your Charitable Giving Strategy?

Do you know whether you will be able to itemize your charitable gifts this year? That’s the big question now that the standard deduction has almost doubled to $12,000 for individuals and $24,000 for married couples?

The simple answer is the charitable giving deduction remains for taxpayers who itemize, but with the near doubling of the standard deductions fewer people will do so.

The higher standard deduction may make itemizing deductions less desirable, so those who stop itemizing will not receive a specific tax benefit for charitable giving.

Keep in mind that some popular deductions, such as the state and local tax deduction and the home mortgage deduction, are now limited.

  • For example, under the new law, if a taxpayer pays state and local taxes and itemizes deductions on their federal tax return, the itemized deduction for state and local taxes is limited to $10,000.
  • If you have been an “itemizer” in the past, each year you may have to decide whether you will continue or alternate your tax strategy by taking the standard deduction some years and itemizing some years.

So what is a charitably-inclined individual to do?

One possibility: “Bunch” your charitable gifts – For those years you decide to itemize. For example here’s how it works:

  • Consider a married couple claiming the maximum property and state income tax deduction of $10,000. This couple also paid $6,000 in mortgage interest in a year.
  • They will need at least $8,000 of charitable gifts in order to hit or surpass — the $24,000 standard deduction threshold.
  • If this couple normally gives $4,250 to charity annually, they can accelerate the gift by bunching two years of donations into one tax year for a total of $8,500.
  • This way, they itemize on their taxes for that year.
  • How many years they decide to bunch will best be determined by talking with their tax advisor.

Bunching? Use a Donor Advised Fund

If the “bunching strategy” is used, some may not want to gift the entire amount set aside in a given year. A donor advised fund can help with management of the giving process and help ensure charitable gifts are made to favorite nonprofits – even during the years when the standard deduction is taken.

  • It is recommended individuals consult with a tax advisor for more information on specific circumstances.

Live Here. Give Here.

  • The St. Louis Community Foundation offers donor advised funds that are managed right here in St. Louis.
  • Take advantage of the local knowledge and philanthropic expertise of the the Community Foundation’s staff.
  • Call 314-588-8200 for more information.

Looking for advice from tax experts? Click here to read more from Tony Caleca, Managing Partner of Brown Smith Wallace and Deborah M. Vandeven, Certified Public Accountant of Brown, Smith, Wallace.