charitable bunching

Charitable Bunching

In Taxes by Amanda Thomas, MS, CFP®, Director of Philanthropic Strategy

 
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By Amanda Thomas, MS, CFP®, CDFA™
Client Advisor

Under the Tax Cuts and Jobs Act, the Standard Deduction available for taxpayers became much larger – almost twice what it was previously.

If you are filing “Single”, it grew from $6,500 to $12,000. If you are “Married filing jointly”, it grew from $13,000 to $24,000. If you are over age 65, you can add on $1,300 to your deduction. This change makes it less likely that the sum of a taxpayer’s itemized deductions (mortgage interest, charitable deductions, medical, etc.) will exceed the larger standard deduction.

The ability to itemize deductions has been curtailed as state income tax and property taxes are now capped at $10,000, Miscellaneous Deductions such as investment advisory and tax preparation fees were eliminated, and mortgage interest is limited to $750,000 of mortgage debt (although for those mortgages in place prior to 12/17/17 the $1 million limit will continue to apply).

If a taxpayer is making charitable donations, and that potential deduction, along with their state and property taxes and their mortgage interest do not exceed their Standard Deduction, then they are not receiving a tax benefit for that charitable donation.

One strategy is to “bunch” donations to charities in specific years, while limiting donations in other years. For example, if a taxpayer typically made donations of $2,000 per year, they could instead give $10,000 in one year which pushes their overall itemized deductions above the Standard Deduction, and therefore receive a tax benefit.

For those taxpayers who want to evenly contribute over multiple years, a “donor advised fund” is a great tool to use. One can donate that same $10,000 in cash, appreciated stock, or other appreciated assets to their donor advised fund in one, single year, and then the donor advised fund allows you to grant out to charities over multiple years thereafter.

The overall effect of the new Standard Deduction increases is that the number of taxpayers that will itemize their deductions may fall by over 50%. Another side effect of the new tax laws is that many people may reduce their charitable giving if they are not receiving the tax benefit.

How We Can Help

Through collaboration with your CPA, we review your prior year’s tax return and discuss any major changes expected to occur in the current tax year. From this, tax minimization strategies may be recommended. At the end of the day, a lower tax burden may lead to improved cash flow and more net income in your pocket.

 
READ MORE:
Tax Planning 2018: 10 Major Tax Changes
Spotlight on the Team: Amanda Thomas

 
1094847 12/18


 
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MS, CFP®, CDFA™

Client Advisor


About the Author
Amanda has over 30 years of financial experience. Prior to joining Mission Wealth in 2006, Amanda spent 11 years as a Vice President in Private Banking at Northern Trust Bank in Santa Barbara, working with high net worth clients and their banking, investment, and trust needs.

Image

MS, CFP®, CDFA™

Client Advisor


Amanda has over 30 years of financial experience. Prior to joining Mission Wealth in 2006, Amanda spent 11 years as a Vice President in Private Banking at Northern Trust Bank in Santa Barbara, working with high net worth clients and their banking, investment, and trust needs.