This article is part of the Professional Advisor Insights series.
Two important rules in the Tax Cuts & Jobs Act (TCJA), enacted in late 2017, affect your ability to deduct your charitable donations. Planning under these new rules can help you get the biggest bang for your charitable buck.
It’s important to understand that you may only benefit from deducting your charitable donations if you itemize deductions on your tax return. According to Urban-Brookings Tax Policy Center, only 28% of taxpayers itemize.
The new rules change the 2019 standard deduction to $12,200 for individuals and $24,400 for couples. So, total itemized deductions must exceed those amounts in order to benefit from itemizing deductions.
Another new rule limits the amount you can deduct for state and local taxes, such as property taxes, to $10,000. This change can affect those of us living in high tax states, such as California.
Put these two changes together and we find that many more taxpayers will likely use the standard deduction rather than itemize. Those who use the standard deduction lose the write off for charitable donations.
What should you think about doing in order to continue to get a tax benefit for your charitable good nature? Consider “bunching” your charitable donations. Here’s how this planning strategy works:
In this example, let’s assume a couple typically donates $4,000 to charity each year and in 2019, they will have the following expenses:
The total of these items is $23,500 — less than the $24,400 standard deduction. So, they claim the standard deduction and will not itemize. In other words, they will deduct $24,400 regardless of the $4,000 they donated to charity.
So, instead of donating $4,000 in a single year, consider “bunching” your donations by making two $4,000 donations, for a total of $8,000 in 2019. And, make no donations next year in 2020. Using the same example above, an additional $4,000 would put them over the standard deduction and they would itemize. Next year they might not itemize. The same “bunching” strategy would be repeated every other year.
Only the timing of the donations changes. The amounts stay the same.
Most people donate to charity because they believe in the cause and not just for the potential tax benefits. So, you don’t need to change the level of your support, just think about “bunching” your giving to get the bigger bang for your charitable buck. Consult your own tax advisor for what is the best strategy for you.
Paul Hynes, CFP® is a Certified Financial PlannerTM Professional and President of HearthStone | Private Wealth Management – an independent fee-only financial planning and investment management firm with offices in San Diego, Irvine and Temecula, California. Paul can be reached at 858-792-9122 or paul@hearthstoneinc.com. HearthStone is a Registered Investment Adviser. More information at www.hearthstoneinc.com.
On August 9, 2022, we awarded $838,704 in Opening the Outdoors grants to 24 nonprofit organizations that offer equitable access to outdoor spaces in San Diego County.
“San Diego Foundation is proud to once again support its partners committed to increasing community-driven efforts to enhance accessible outdoor space, encourage youth to learn more through hands-on education and create the next generation of environmental stewards in the San Diego region,” said Christiana DeBenedict, SDF Director of Environment Initiatives.
This year’s grantees will help address these inequities and enhance access to the outdoors throughout San Diego County.
"*" indicates required fields
The Advisor monthly e-newsletter provides philanthropy news and trends and financial planning strategies for advisors and their clients.
"*" indicates required fields
"*" indicates required fields
Receive quarterly email updates about our Children and Families programs and initiatives and opportunities for you to support stronger families in our region.
"*" indicates required fields
Receive quarterly email updates about our Education programs and initiatives and opportunities for you to support enhanced learning experiences and increased access to college for San Diego students.
"*" indicates required fields
Receive quarterly email updates about our Environment and Climate programs and initiatives and opportunities for you to support equitable outdoor access and climate change resiliency.
"*" indicates required fields
Receive quarterly email updates about our Racial and Social Justice programs and initiatives and opportunities for you to learn about creating equitable opportunities for all and how to support our multicultural region and its diverse population.
"*" indicates required fields
This helpful resource provides you with information about corporate philanthropy and custom corporate giving solutions for your business.
"*" indicates required fields
This helpful resource will show you how you can leave a legacy to your family, your charity or your community that complements your will and trust(s).
"*" indicates required fields