Congress may have intended to simplify tax filings by doubling the standard deduction to $12,000 (single) and $24,000 (married filing jointly), but for individuals who itemize and deduct their charitable contributions, the new tax law has made matters a bit more complicated.
According to the IRS, a total of 36,624,000 taxpayers claimed a deduction in 2015 for cash contributions to charities, for totaling $221,850,000. For gifts other than cash, 22,542,000 people deducted a total of $70,870,000 worth of assets and goods. This shouldn’t have to change – with a little advance preparation, you can have your cake and eat it too (the higher standard deduction and the charitable one as well)!
When you “bunch” your charitable gifts, you give the same amount as you usually do. However, instead of donating every year, you do it every other year. For example, if you generally give $6,500 per year, you could hold off on your charitable contributions this year and take the standard deduction of $12,000 (single), and in early 2019 donate $13,000, what you otherwise would have given for a two-year period, and itemize your deductions on your 2019 return. Skip your donations in 2020 and take the standard deduction, give two-year’s worth in 2021 and itemize, and so on.
Here’s another example to show how a married couple can beat the standard deduction of $24,000 while donating the same amount. Let’s say that John and Jill have a home and a mortgage and give regularly to their church and/or local homeless shelter. If they claim the maximum state income tax and property deduction of $10,000 and deduct their mortgage interest of let’s say $5,000, that leaves $9,000 in itemized deductions to match the standard deduction amount. If they regularly contribute $5,000 per year to charity, by making two years’ worth of donations ($10,000) every other year, they can take the standard deduction of $24,000 one year, itemized deductions totaling $25,000 the following year, take the standard deduction the following year, and so on. And all this without losing any of the tax benefit of their contributions!
Consider using a donor-advised fund
A visit to your local community foundation may provide even more flexibility for bunching donations. Donor-advised funds, housed at public foundations, permit taxpayers to make a tax-deductible charitable transfer in one year and instruct the fund administrator to make distributions to charities of their choosing in subsequent years. The foundation invests the funds and takes an administrative fee.
San Francisco tax attorneys
Under the new tax law, charitable deductions of cash gifts are limited to 60% of your adjusted gross income, with a five-year carryforward for donations that exceed that amount. The experienced tax attorneys and accountants at Moskowitz, LLP are available to help you maximize your deductions in accordance with the new tax law.