Year End Tax Tips Continued – 3 Tips for Itemizing Your Charitable Giving
As we approach year-end, I share my final commentary on tax planning in the era of the Tax Cuts and Jobs Act (TCJA). Last time, I covered why it’s now difficult to claim itemized deductions for many taxpayers. Today I offer hope for those charitably inclined. If you are still making meaningful charitable contributions, but find the TCJA makes it more difficult to write off those donations, here are 3 ways you may still be able to write off your charitable giving anyway.
1. Bunching donations: If you find your total itemized deductions are just short of the standard deduction, consider doubling your 2019 charity to include 2020 contributions. Then make no contributions in 2020. Say you and your spouse donate $8,000 to charity in 2019, bringing your total itemizable deductions to $20,000. You’d want to take the higher, $24,000 standard deduction for married filers. If you instead donated $16,000 in 2019 (and nothing in 2020), your deductibles would total $28,000, so you could itemize in 2019. In 2020, you’d claim the standard deduction.
2. Establish a Donor Advised Fund (DAF): You can super-bunch your giving by donating several years’ worth of contributions in 2019, and then distributing the proceeds over time. You do this by donating to a DAF charity. Once your funds are in the DAF, you advise the fund regarding when and where to distribute the funds. Using my bunching example above, say you donated $40,000 to a DAF now, and advised the DAF to distribute the proceeds over the next 5 years. Your 2019 itemized deductions would be $52,000. You’d take the standard $24,000 deduction for the next 4 years.
3. Making Qualified Charitable Distributions: If you are 70½ or older and must make Required Minimum Distributions (RMDs) from your IRA, you could have your IRA custodian make your donations for you. Qualified Charitable Distributions made out of your IRA reduce your RMD, which is taxable. So, while you’re not claiming the donation as an itemized deduction, you are reducing the taxable portion of your RMD dollar for dollar.
That’s a wrap on my year-end tax tips. Except, as I’ve said before: Don’t forget to consult with a tax professional before proceeding. These broad ideas may or may not apply to you exactly as described.
Written by John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ who founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, which fits right in with his dedication to helping families and retirement plan providers build durable wealth, while simplifying their financial path. Learn more at www.alliantwealth.com.