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:

Facebook
LinkedIn
Twitter
Google+

The New “ATL Financial” App: Account Information in the Palm of Your Hand

We are excited to announce the rollout of our very own ATL Financial app! Simply go to the App Store on your smartphone and search for “ATL Financial.” If you have already established your credentials and accessed the AFA portal, you will simply need to enter the same user id and password to log in to the app. You will be able to view the same information available on our portal right in the palm of your hand.

Read More »

Key Retirement and Tax Numbers for 2019

Every year, the Internal Revenue Service announces cost-of-living adjustments that affect contribution limits for retirement plans and various tax deduction, exclusion, exemption, and threshold amounts. Here are a few of the key adjustments for 2019.

Read More »

Famous People Who Failed to Plan Properly

It’s almost impossible to overstate the importance of taking the time to plan your estate. Nevertheless, it’s surprising how many American adults haven’t done so. You might think that those who are rich and famous would be way ahead of the curve when it comes to planning their estates properly, considering the resources and lawyers presumably available to them. Yet there are plenty of celebrities and people of note who died with inadequate (or nonexistent) estate plans.

Read More »

Nine for ‘19: Financial Steps You Should Take Now

With the start of a new year, most of us begin making plans in all aspects of our lives for the year ahead – and beyond. One area we should consider is financial well-being —not only our tax outlook, but also investment and retirement strategies, property and personal insurance coverage, and more.
Here is a helpful list of actions you can take now that will cultivate a more fruitful 2019.

Read More »