The Charitable Deduction Has Changed – Has Your Charitable Giving Strategy Changed With It?

SBK Planning Series:
By Dean Williams, CPA

Keeping track of itemized deductions is a routine habit for taxpayers. But for the first time in over thirty years, itemized deductions were significantly revamped starting in 2018. Were you surprised by which deductions were no longer available? Did your advisor explain the new $10,000 cap on state and local taxes or the new increased standard deduction? Were your charitable contributions fully deductible?

Now that we’ve had over a year to observe and digest the new tax law, we wanted to highlight some considerations for making the most of your charitable gift budget.

How we work with our clients on maximizing their itemized deductions has changed dramatically in this new environment. An area where we frequently focus our planning, and perhaps the area in which taxpayers have retained the most control and flexibility, relates to the charitable deduction.

What we’re seeing:

After the reconfiguration of Schedule A, many taxpayers are left with only two “fixed” itemized deductions (before consideration of charitable giving): 1) state and local taxes and 2) mortgage interest. A family with no mortgage now may only have one itemized deduction: $10,000 for state and local taxes. Suddenly, this family has a $14,400* annual “hurdle” to clear before charitable contributions become tax deductible.

*Note: the standard deduction for married couples under ages 65 is $24,400 for 2019. 

So, how do you continue to satisfy your desired level of annual charitable giving without leaving annual tax deductions on the table?    

• Consider pre-funding multiple years of charitable giving into one year
• Vehicles such as a donor advised fund (DAF) or a charitable lead trust can allow taxpayers to spread out the disbursements to charity over multiple years rather than all at once
• This pre-funding allows the taxpayer to take an up-front charitable deduction in the year of the gift, provided that the gift amount clears the “hurdle” to itemize, and then intentionally benefit from taking the higher standard deduction over the next few years

Additional ways that you may be able to maximize your tax benefit:

• Can you gift appreciated securities or other low basis, non-cash assets?
• Are you eligible to give directly from your IRA?
• Have you researched whether your charities are supported by state tax credit programs?

Reminder: Charitable deductions provide more overall tax benefit in years where the donor faces a higher marginal tax rate. These are the type of events that could inspire taxpayers to consider increasing charitable giving (or pre-funding future years of giving):

1. Sale of a business or real estate
2. Receipt of a one-time or unusually large bonus
3. Upcoming retirement, specifically an early retirement (before Social Security and RMDs)

Every taxpayer’s situation is unique and we enjoy working with our clients to capitalize on their specific details but we hope the above ideas help serve as a framework for reevaluating your charitable giving strategy. To learn more about how we work with clients and help them incorporate charitable giving into their overall financial plan, please visit our website at www.sbkfinancial.com.

 SBK is a wealth advisory partner offering holistic, independent and objective wealth management services.  Our customized and comprehensive approach enables us to generate tailored solutions for you and your family – every step of the way.