GOLDEN VALLEY, Minn. — The reasons we donate to charity haven’t changed, but the tax benefits sure have. Many of us no longer have a tax incentive since we’re not itemizing. But there are still ways to give and make a difference when tax season rolls around. Great Waters Financial Partner and Lead Advisor Justin Halverson discussed some lesser known tax strategies for making charitable contributions this holiday season.
Q: DID THE NEW TAX LAW IMPACT DONATIONS LAST YEAR?
- Charitable giving dropped 1.1% in 2018. The decline does come after the new tax law went into effect, but some experts say other factors like a volatile stock market could have impacted donations.
- Because the new tax law increased the standard deduction, many taxpayers who used to itemize their deductions took the standard deduction last year, which eliminates the tax benefits of donating to charity.
Q: IS THERE ANYTHING WE CAN DO TO GET A TAX BENEFIT IF WE DON’T ITEMIZE?
Here are a few strategies:
- Instead of giving to charity every year, save your donations and give twice as much every-other year.
- If you use the bunching strategy and want the tax benefit of itemizing, the amount you donate along with your other tax deductions, must be greater than the standard deduction in order to itemize.
- Bunching was once a strategy used most often by taxpayers who were retired so they could take advantage of itemizing their taxes every few years. With a higher standard deduction anyone should consider bunching donations to take advantage of itemizing.
- Donor-advised funds are created or sponsored by a charity. The taxpayer creates an account with the donor-advised fund and makes contributions.
- These contributions can be made over a period of time, then you can take one large charitable deduction when it makes the most sense for your tax situation.
- Opening a donor-advised fund tends to be easy, but it typically requires a minimum investment and maintenance fees.
- The money you put into a donor-advised fund grows tax-free, meaning you could give a larger contribution in the future!
Required Minimum Distributions
- Another way to give back to others is by using your Required Minimum Distributions.
- If you’re over the age of 70 ½, your deadline to take distributions out of your IRA is likely the end of the year, and you can transfer money straight from your IRA to a qualifying charity.
- Talk to your financial professional to determine how much you need to withdraw and your deadlines.
- Make sure charitable giving is included in your comprehensive retirement plan.
Q: WHAT ELSE SHOULD WE CONSIDER WHEN IT COMES TO CHARITABLE GIVING?
- Choose a cause that’s important to you, and be sure to investigate the charity.
- There are several websites where you can research charities online, greatwatersfinancial.com.
- Be sure to include your charitable giving in your holiday budget, and talk with your financial professional and tax professional to go over any questions.