Many charities have been unable to host the in-person fundraising events they have historically relied upon. At the same time, many people are struggling financially. It is a critical time for charities and it may also be prudent financial planning to accelerate planned gifts.
The 2017 Tax Cuts and Jobs Act increased the standard deduction beginning in 2018. As a result, fewer households used itemized deductions. The number of households that claimed an itemized deduction for charitable contributions declined over 62% from 2017 to 2018.
Looking forward, Biden’s proposed tax plan includes capping the tax reduction received for itemized deductions, including charitable donations, to 28% for those with incomes above $400,000. As a result, near-term giving may produce a larger tax benefit than giving in future years. For example, if this policy proposal were passed, and a household’s current marginal federal income tax rate is 37%, accelerating $1 of charitable donations to this year may produce a $0.09 larger tax reduction than giving in the future.
Even if a cap on the value of charitable donations and other itemized deductions is not enacted, bunching donations into a single year may be beneficial. A young married couple that only has $15,000 of other potential deductions would take the standard deduction if they give $9,800 or less to charity. If they give $9,801 to charity, they would likely itemize, but their taxable income would only be $1 less than if they gave nothing at all! If they give $15,000 this year and have a sufficiently high adjusted gross income, they would itemize and have a total of $30,000 of deductions. If they give $7,500 this year and next year, they would likely take the standard deduction both years. Grouping donations into a single year would allow this hypothetical couple to maximize the tax deduction received by clearing the standard deduction hurdle once rather than facing it multiple times.
Finally, with the stock market near all-time highs, many investors own appreciated stock. Giving appreciated stock is often more tax efficient than giving cash. For those who would like to consider this option, it is essential not to delay as processing times for transfers may be delayed as we approach the end of the year.
At Integrity Wealth Partners, we understand that each client’s financial situation is unique and not everyone is in a position to give this year. We are fully aware that the majority of our clients who donate to charities do so because they care deeply about the causes, and not necessarily for the tax write-off, but it is incumbent on us to explore charitable giving from all angles on behalf of our clients. By gifting in a more efficient manner, more of our client’s hard-earned assets can be delivered to the charities they care about while simultaneously minimizing the amount of taxes paid.
Contact us today if you would like to evaluate if strategic giving can help you achieve your charitable goals.