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.

Share This:

Share on facebook
Facebook
Share on linkedin
LinkedIn
Share on twitter
Twitter
Share on google
Google+

What is the SECURE Act and does it matter to me?

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019.  With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare.  However, some of the changes will be significant.  I have tried to highlight what may impact the majority of our clients and readers.

The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70.  The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner.  I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?

Read More »

Are you prepared for alimony to stop? Three ways to improve your finances if you’re getting alimony

A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.

Read More »

Remember in December: 8 Critical Ways to Organize your Finances Before Ringing in 2020

I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.

When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.

Read More »