Charitable Giving Strategies in light of Tax Reform

Charitable Giving Strategies in light of Tax Reform

Charitable donations are still deductible in 2019, however fewer Individual taxpayers will itemize in 2019 due to the increase in the standard deduction. 

The standard deduction for married couples filing a joint return is $24,400.  Furthermore, the deduction for state, local, and real estate taxes is capped at $10,000 in 2019 and there is no longer a deduction for investment fees, unreimbursed employee business expenses, and other deductions formerly deductible when you itemized.

Taxpayers who expect to have total itemized deductions below $24,400 but make substantial charitable contributions do have other options in order to receive a tax benefit for charitable giving.

Donor Advised Funds

Timing deductions so they are bunched in one tax year is a strategy often used.  One effective way to do this is to utilize a Donor Advised Fund (DAF) for charitable giving.  Typically these funds are set up through an investment firm such as Schwab or Fidelity.  The taxpayer transfers funds to the DAF and receives a tax deduction for the fair market value of the assets transferred in the year of the transfer.  The taxpayer then can direct the fund manager to distribute the funds to qualified charities of the taxpayer’s choice over time in future years.   

  • Transfer cash and/or appreciated stock and receive a deduction of the fair market value
  • Receive a deduction in the year of transfer
  • Direct funds to be distributed to charities in subsequent years’
  • There are annual fund fees including management and investment fees
  • The fund sets minimum initial contributions to set up the fund and minimum disbursements to charities.  These vary, depending on the investment firm.
  • DAF are best for donors who are committed to giving in future years and can afford to give up the use of the assets in the current year.

Qualified Charitable Distributions

For taxpayers who are over age 70 ½ and receiving required minimum distributions (RMD’s), Qualified Charitable Distributions (QCD’s) may be a more advantageous way to give to charities.   The taxpayer directs their IRA trustee to make a direct gift to a qualified charity from the IRA.  This transfer is considered part of the RMD for the year however it is not taxable. 

The QCD strategy works best for seniors if:

  • Taxpayer will not be itemizing deductions – using a QCD for charitable giving reduces your taxable income even if you cannot itemize
  • Taxpayer itemizes but charitable donations are delayed due to the 60% -of-AGI limitation
  • The annual limit is $100,000 of QCD’s per taxpayer

Both of these strategies must be in place by 12/31/19 to benefit taxpayers in 2019.  If you are interested in learning more about these tax saving giving strategies for 2019 and beyond, please contact our office at 253-852-8500. 

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