The new income tax law for 2018 has by and large increased the number of tax payers who will file using the standard deduction versus itemizing. This is due to what is allowed to be deducted. This is not all inclusive, however, as most tax payers will have SALT (State and Local Taxes) with that amount limited to $10,000 and mortgage Interest limited to $750,000 of a loan amount and charitable deductions. In exchange for the reduced deductions you have an increased standard deduction for of $12,000 for single tax payers and $24,000 for married filing jointly. In summary, if your SALT, Mortgage Interest and Charitable Gifts are below the standard deduction you will likely not itemize.
The issue here to discuss today is how to preserve the deduction of your on your charitable gifts.
One technique we are using is gift stacking. Gift stacking is when you want to make gifts to your charity of choice on a monthly basis. With the new tax bill, if you continue with monthly or annual giving you may very well lose your charitable deduction if your deductions do not exceed the standard exemption. One solution to this problem is to make larger planned gifts to the charities of your choice that represent two or three years of giving. Gift stacking, in conjunction with other deductions like SALT and Mortgage interest, allows you to keep the charitable deductions. One problem with this is you may not be completely comfortable giving so much upfront or delaying your giving a year may put your favorite charity at a disadvantage. A solution to this is to use a Donor Advised Fund. We sometimes like to refer to this as a poor man’s private foundation. By contributing a lump sum or even better highly appreciated stock (for maximum tax advantage) you can take the full deduction upfront on your contribution in that year. What is really great about this technique is you can invest the proceeds in some diversified mutual funds that have the potential to grow while continuing to make your monthly contributions out of the Donor Advised Fund to your charity of choice.
Another great technique to maximize your charitable gifts is Qualified Charitable Distributions. If you have an IRA and you are over 70.5 years old you must take Required Minimum Distributions. To avoid losing the tax advantages of making gifts to charities we send the contribution directly from your IRA to the charity and this reduces the amount of your Required Minimum Distribution. Just remember, the maximum amount you can gift annually is $100,000 and the charity has to be a 501 (c) (3). This means you cannot make a Qualified Charitable Distribution to a Donor Advised Fund, Private Foundation or Supporting organizations.
The bottom line is that giving to charity is great but you should plan to make it most advantageous to you from a tax perspective. Most importantly set up a meeting with your CPA and a Financial Advisor with a background in tax strategy to create a plan.
Scott A Winslow, ChFC is Managing Partner and Co-Founder of Nabell Winslow Investments, a regional financial advisory firm that helps accomplished entrepreneurs, professionals, retirees, and those with sudden wealth transition to a life of long-term financial independence through personalized and professional assistance. Contact Scott and his associates at (910) 239-9130, email firstname.lastname@example.org, or visit www.nabellwinslow.com.
Registered Representative offering securities and advisory services through Cetera Advisors LLC, Member FINRA / SIPC. Cetera is under separate ownership from any other named entity. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.