Should Phillips University Legacy Foundation be bracing for a drop in donations as a result of the Tax Cuts and Jobs Act passed by Congress late last year, as the pundits predict? We hope those fears are misplaced. We know that you are passionate about the work we are doing together through the Legacy Foundation, but we also recognize that tax considerations are on everyone’s mind.
Because the new law nearly doubles the standard deduction (from $6,350 to $12,000 for singles, and from $12,700 to $24,000 for married couples who file jointly), the incentive for folks to itemize their charitable donations as deductions is simply not as compelling. But before you say it’s not “worth it” to make a charitable donation, here are a few ideas to check out with your tax advisor:
Consider bunching your donations for multiple years into one year If you combine, or “bunch” what you would give to a charity over several years into one donation, you may exceed the threshold for itemizing more than the standard deduction. For example, if you plan on giving $5,000 a year over the next three years, consider making one donation of $15,000 in a single year, and not making a donation in the second and third year. This will allow you to write off more than the standard deduction in the year of the “bunched” donation, and still take the higher standard deduction in the second and third years.
Donate appreciated stocks and securities. With the stock market still riding at an all-time high, now is a good time to transfer appreciated stocks, mutual funds, and other exchange-traded funds. While tax brackets and tax rates are more favorable than they were last year, capital gains taxes are still a potential pitfall for many taxpayers. Donating appreciated assets to a public charity, such as the Legacy Foundation, gives the donor a deduction for the full market value of the appreciated asset and avoids the capital gains taxes that would be assessed if the asset was liquidated and then donated to charity.
Open or add to a donor-advised fund. A donor-advised fund (DAF) is an account established by a donor at a public charity such as a community foundation or investment firm. The donor can contribute assets such as cash or stocks, for which an immediate tax benefit is received, then later decide how and when to distribute the funds to charity. Donor advised funds are a good way to “bunch” a donation or transfer appreciated assets, because the donor can take advantage of the tax benefits while making donations from the DAF over a period of years.
Consider a qualified charitable distribution if you are 70 ½ or older. The new tax law did not affect the qualified charitable distribution (QCD), which was made permanent in 2015. Donors who have attained the age of 70 ½ must take a “required minimum distribution” annually from their retirement accounts, and a QCD would fulfill that obligation. The distribution is made directly to the charity, reducing the donor’s taxable income.
For those who don’t itemize, use the extra tax savings to make a larger gift. If you’re like most taxpayers, you will have an extra $5,650 ($11,300 for married couples filing jointly) in your pocket at the end of 2018 due to the increase in the standard tax deduction. We’re hoping you will consider sharing this windfall with Phillips University Legacy Foundation, and continue making an impact in the lives of future Christian leaders!
The suggestions listed in this article should not be considered legal or tax advice. You are encouraged to discuss your personal tax situation with a professional. If you have questions, call Valerie Richardson, Director of Development at 580-540-0890, or email her at firstname.lastname@example.org.