According to Giving USA 2018, the United States has continued to see an upward trend in charitable giving reaching 410.2 billion dollars in 2017. Donating is a personal experience– one that relies on our thoughts, opinions, actions, and livelihoods, driving on affinities, loyalties, and emotion. Many people feel it is their duty to give back to the world that they inhabit, to make other’s lives better.
When you give money to an organization, you are giving them a piece of yourself. This is a wonderful thing. With donations being such a large part of our American identity, how will you maximize your givings this year?
We are coming upon a season of giving and thanks, now is a great time to think about the best ways to make a bigger impact with your charitable giving.
The New Tax Code
Donation is an act of altruism, and people do not donate solely in order to further their personal financial journey. That being said, there are tax benefits to be had through donating. The recent change to the tax bill has caused a stir about how to most effectively donate and still receive tax benefits.
Under the Tax Cuts and Jobs Act, receiving benefits from charitable donations is significantly more difficult due to the increased standard deduction protocols. It is important to note that the standards for the deductions of donations is unchanged with this law, meaning that the amount of money that you are able to deduct and itemize from each gift has not altered.
This law states that an individual taxpayer would need an itemized deduction that exceeds $12,000, that is almost double from the initial $6,350 threshold. Married couples filing jointly would need their deductions to exceed $24,000, as opposed to the $12,700 previously. With itemized deductions offering households a majority of the tax benefits, many people will be unable to partake in the rewards with such a high bar.
What are some solutions to this new predicament?
Donating in New Ways
With the new tax code, people are turning to creativity in order to both give to organizations they care about and get tax benefits. Let’s look and see some unique methods for giving.
- Bunching Strategy
- The bunching strategy encourages donors to lump their gifts into different tax cycles. For instance, if you usually give $6,000 per year, consider giving $12,000 every two years. Grouping your payments is an excellent way to meet the minimum standard deductible while also supporting causes that are important to you.
- Stocks or Appreciated Assets
- Some people forget that donating a stock investment, bond, or mutual fund to a charity is a great method for donating in a tax-friendly way. One of the benefits of donating a stock is that you will not have to pay capital gains tax on the money. Generally, if your asset has appreciated in value it is best not to sell it in exchange for the cash needed to donate. If you donate the appreciated asset itself, it increases the amount of your gift and deduction.
- It is important to note that your deduction is limited to 30% of your adjusted gross income. If you are planning a large gift that exceeds this amount, talk with a financial planner or tax accountant (better if they are both one person).
- Income Property
- Tangible property like Picasso paintings can also be donated. With this option it is important to look at the fair-market value of the item and how much you choose to deduct. Depending the value of the property, you might need to get a valuation from an outside firm.
Making A Better Future
Your charitable givings are important. They seek to help organizations create a better place for causes that are important to you. Remember, before you donate thoroughly vet the organization you are looking to donate to. Look at how they divide and use your funds, ensure that your money is being used in a way that makes you comfortable. Be sure to ask the following questions:
- How will the gift be used?
- What is the percentage breakdown of the gift?
- What are the values of the organization and how do they use charitable gifts to live those values?
Going through this research process does add an additional step to the process, but the benefits it offers outweighs the temporary discomfort. You are giving your money, therefore it is important that you are fully aware of who you are giving it to and how it is being used
Donating is a gift that can have many benefits for the recipient and the benefactor alike. Take a close look at how you are donating this year, keeping in mind the new tax code laws and see how you can increase the impact of your gift.