June 2020
College & Tax Planning

In the wake of the Pandemic, the desire to gift to charities is on the rise. But with the standard deduction doubled and many popular deductions eliminated, it may not make sense to itemize your tax deductions. But how can you still receive a tax benefit for charitable giving? 

One strategy to consider is called “bunching.” To take advantage of this strategy, you contribute multiple years’ worth of your charitable giving in one year to surpass the itemization threshold. In off-years, you take the standard deduction. Under the tax reform law, your charitable donation alone no longer surpasses the standard deduction threshold, which is now set at $12,400 for single filers. However, if you were to “bunch” two years of donations into one year, you can itemize every other year and receive the full tax benefit of this charitable giving.  

Another strategy if you are looking to donate to charities you can do so using long-term appreciated securities which in effect, reduces income tax liability and may eliminate capital gains tax on the assets. Capital gains taxes are eliminated when you contribute long-term appreciated assets directly to a charity instead of selling the assets yourself and donating the after-tax proceeds. When you assume 20 percent for federal long-term capital gains taxes, plus a 3.8 percent Medicare surtax, this leads to a potential increase of 23.8 percent of both your tax deduction and your charitable contribution.

Lastly, A donor-advised fund is an ideal vehicle for tax-savvy charitable giving. By making a charitable contribution to a donor-advised fund, you become eligible to take an immediate tax deduction for the amount contributed. Your contributions are invested so they have the potential to grow tax-free and generate more money for the charities you care about. You can then support your favorite charities in a time frame that works for you. 

If you are looking to donate to a charity in the near future, give us a call at the office to see how to do so in the most tax advantaged way for your situation! 

If you have questions, please contact us.

MARKET UPDATE
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401(k) ALLOCATION
QUOTE OF THE MONTH

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