The Neyland Report
Earning - Thriving - Giving Back




Much controversy swirled around the Tax Cuts and Jobs Act of 2017, and many people are still trying to figure out what is and is not deductible. One of the main topics of discussion has been whether taxpayers can still claim any benefit by donating to charity. For some it became a “Catch-22” — tax reform increased the standard deduction to $12,200 for singles and $24,400 for couples, which could lower your incentive to itemize your deductions – including for charitable donations. However, in order to take a deduction for a charitable contribution, you must itemize your deductions.

Even with that being the requirement, there are still some smart ways to benefit by giving to charity:

BUNCHING: Bunching is becoming increasingly popular now. Bunching is a strategy by which the taxpayer combines multiple years’ worth of charitable giving in one year to surpass the itemization threshold. In off-years, you take the standard deduction. For example, if you plan to give $4,000 per year for the next four years, you gain advantage by donating $16,000 all in the first year of the four years. This is a legal way to bypass the roadblock of the higher standard deduction requirement.

DONOR ADVISED FUNDS: An individual or family can establish a donor advised fund. This is an investment strategy by which the taxpayer surrenders cash or other assets to the fund, and then is allowed to take a tax deduction for having done so. Then the donor will have full control over how the money in the fund is dispersed to selected IRS-approved charities. The money in the fund continues to grow (much like an IRA) until you decide to donate all or part of it. Some experts say this is creative philanthropy at its best, and it is all perfectly legal.

DONATING FROM YOUR IRA: Here is some good news for septuagenarians. If you are 70 ½ years old, the tax code states that you can donate up to $100,000 from your IRA to charity, without it being a taxable distribution. This is the age when you are required to start taking required minimum distributions or face tax penalties. By donating part of your IRA to charity, you can meet the requirement and avoid the penalties.

When the Tax Cuts and Jobs Act of 2017 was announced, there was widespread concern that charitable giving would decrease. Non-profits reported a sharp decline in charitable giving in 2018, possibly due to some misunderstanding among taxpayers about some of the above-described strategies. For 2019, charitable giving is still down, but the hope among non-profits is that by further educating the public about these beneficial strategies, more taxpayers will be inclined to give part of their assets to charity.

Related Articles