How the New Tax Code Will Effect Your Donations

The new tax law will likely effect how you donate.  It could lead you to "bunch" your donations or possibly contribute less.

In a snapshot here are the two changes:

1. The standard deduction is doubling to $24,000 for married couples and $12,000 for individuals.
2. State and local tax (SALT) deductions are now capped at $10,000.  

When the standard deduction was lower more filers itemized and took the full tax benefit of their donations.  Now with the higher standard deduction and SALT limit, more will take the standard deduction.  For example:

John and Mary are married filing jointly.  They have $4,000 in charitable donations plus $6,000 in mortgage interest expense.  These combined with their SALT limit of $10,000 only add up to $20,000.  Not enough to itemize.

They could forgo making any contributions and still take the $24,000 standard deductions.  Charities are worried about this.  They could, however, bunch several years of donating into one so they have enough to itemize.  In essence itemize every second or third year.  

Another alternative is to open a donor advised fund (DAF).  A charitable vehicle that bunches with additional flexibility.  Donors can transfer cash, securities, real estate or other assets.  Avoid capital gains and take an immediate tax-benefit.  Make grants on your timetable.  Accounts grow tax-free.  DAFs have other benefits as well including estate planning.

If you would like to learn more about bunching or DAFs please contact me.  As always run any tax strategy by your CPA.

Originally posted at www.lindenwm.com