Atlanta Financial Blog

Stack Charitable Donations to Minimize Taxes

Julianne F. Andrews, MBA, CFP®, AIF®
December 18, 2018

Recent tax reforms cleared the way for individuals and families to support the causes they believe in while potentially minimizing their taxes. However, this new approach has a few twists that require a bit of explanation regarding how “stacking” deductions work.

The Tax Cuts and Jobs Act of 2017 (TCJA) increased the standard deduction for those filing jointly to $24,000 – a $4,000 increase over the amount that was available in the past to joint filers.  In addition, the TCJA put a cap of $10,000 on the deductibility of state and local income taxes (including real estate taxes).  The combined effect of these two changes will mean that many more taxpayers will use the standard deduction moving forward instead of itemizing.  However, the only way to deduct charitable contributions, is to itemize.  So, what is the solution for the taxpayer who wants to continue to contribute to charities year after year?

By “stacking” deductions and funding two (or more) years of charitable giving in a single year, joint filers may be able to make themselves eligible to choose a higher deductible in alternating years. The following charts show how charitable donations and itemized deductions work. The first chart shows the tax impact without stacking, while the second features the tax advantages associated with stacking:

Itemized Deductions – without Stacking

Limited State Income and Real Estate Taxes Charitable Contributions Allowed Itemized Deductions Standard Deduction
Year 1 $10,000 $10,000 $20,000 $24,000
Year 2 $10,000 $10,000 $20,000 $24,000
Total Deductions over Two Years

($24,000 x 2)

      $48,000

 Itemized Deductions – with Stacking

Limited State Income and Real Estate Taxes Charitable Contributions Allowed Itemized Deductions Standard Deduction
Year 1 $10,000 $20,000 $30,000 $24,000
Year 2 $10,000 -0- $10,000 $24,000
Total Deductions over Two Years

($30,000 + $24,000)

      $54,000

Consistent givers may have angst about making a substantial donation one year and giving no support to their causes the following year. However, establishing a donor-advised charitable account provides a tax deduction in the year the money was set aside while allowing the giver to specify when the funds are to be distributed. Funds residing in the donor-advised account can be invested – for preservation or growth – while they await distribution. These donor-advised funds (DAFs) offer charitable givers a way to make annual donations to the charities they support, reap maximum tax advantages and provide opportunities to:

  1. Build a sustainable fund for giving throughout retirement.
  2. Use a single receipt for annual tax preparation regardless of how many grants are made during the year.
  3. Automate regular giving on different cycles.
  4. Give anonymously and limit the number of incoming requests for support.

DAFs are easy to open and generally require an initial minimum contribution of $5,000. Once established, DAFs can accept as little as $500 and distribute grants as low as $50.

For more information about how you could benefit from a DAF, consult your financial advisor at Atlanta Financial Associates. We will work with your tax professional to help make sure you are able to support your favorite charities and take maximum advantage of the tax savings available to you.

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