Last week in Part I of this series, we outlined the basics of the more common charitable giving tax-saving strategies.
In light of the most recent tax law changes that went into effect in 2018, many people are revisiting how they strategize their charitable giving. The 2019 standard deduction for Married Filing Jointly is $24,400 (if over 65 that increases by $1,300 per person) and $12,200 for Single filers (if over 65 that increases by $1,650). This means that fewer people, especially married couples, are itemizing deductions due to this increase in standard deductions and also because many exemptions were eliminated. In fact, 37 million households itemized deductions in 2017 and only 12 million households are expected to do so in 2019 (Urban-Brookings Tax Policy Center).
First, review your 2018 donations and determine which changes, if any, you and your family would like to make to your 2019 donations with regards to amounts (both total and broken down) and organizations you would like to give to. Charitynavigator.org reviews charities with revenues over $1 million on a variety of factors including financial health, accountability, and transparency, which may be helpful in seeing how your gifts will be used.
Next, determine if you will itemize your deductions or take the standard deduction for the 2019 tax year (if your itemizable expenses are greater than the standard deduction, then you would itemize). Don’t just assume that you won’t be able to itemize, especially if you are a Single filer. The largest categories for itemization are medical expenses, taxes, mortgage interest, and charitable giving (however, remember that if you are over 70.5 and gifting from your IRA tax-free as a Qualified Charitable Distribution, those donations cannot also be itemized). A few things to note for 2019: for those who qualify for the medical expense deduction, the expenses now have to be over 10% of your adjusted gross income (up from 7.5% in 2018). The real estate tax exemptions are now capped at $10,000 regardless of filing status, meaning Married Filing Jointly are capped at $10,000 (together, not individually) and Single filers are capped at $10,000. This is part of why it may be easier for Single filers to hit their standard deduction limit.
As mentioned in Part I, if itemizing still makes sense for you, it may be optimal for you to “bunch” donations into one year to get as high over the standard deduction as you can (in the image below, SALT stands for state and local tax).
Another potential strategy to consider with regards to timing your charitable giving is offsetting. You can offset a high-income year by donating a larger cash gift or bunching multiple years of donations into one, reducing your taxable income.
This a hypothetical example for illustrative purposes only. This chart assumes the donor contributes a cash gift. State and local taxes and the federal alternative minimum tax are not taken into account. Information herein is not legal or tax advice.
Charitable giving is a great way to help your community and the causes you care about. It is also important to do it in the most efficient way possible, increasing the positive effect on both the organization and you. If you would like to discuss your personal situation or explore charitable giving strategies, please reach out to us.
Until Next Time,
Diana Lormand, FPQP™
Director of Client Services