Has spring truly sprung? I sure hope so after the brutal winter we experienced. Even still, while enjoying the nice weather and working in my yard this past weekend I decided I better not tempt fate and store my snowblower away just yet.
No matter the weather, it is tax season and April 15 is just around the corner. Most of you have probably filed your taxes for 2018, and you may have found that with the new higher standard deduction you could not itemize your deductions for the first time in many years.
Although you may not want to keep thinking about taxes, now is the best time to start planning for next year. The higher standard deduction has many charities, including your community foundation, encouraging donors to use a tax-advantaged planning tool. That tool is a donor-advised fund. A donor-advised fund is like a charitable giving savings account and a great way to establish a family foundation. When you make contributions to your donor-advised fund you immediately receive a charitable contribution.
You can make grants out of your fund at a later time to the nonprofits of your choice. So, for charitable couples who may not have itemized deductions exceeding $24,000 each year using a donor-advised fund to bunch two- or three-years’ worth of contributions into one calendar year may exceed the new standard deduction and provide additional tax savings. And if you establish your donor-advised fund by donating appreciated stocks you can also bypass the capital gains tax.
For example, let’s take a couple with state and local tax deductions, plus mortgage interest deductions that total $15,000 per year. They’re charitably minded and currently donate $7,000 to support their church and favorite nonprofits. As such, they have $22,000 total in itemized deductions. Since the standard deduction is now $24,000, they cannot itemize. However, if they use a donor-advised fund to bunch their charitable giving and put three years’ worth of contributions or $21,000 into their fund, then they would have $36,000 in deductions this year and could itemize and receive the additional tax savings. In the next two years they would take the $24,000 standard deduction on their tax return. They can continue to donate their typical $7,000 each year, but by bunching contributions and using their donor-advised fund to make grants to charities they can still benefit from a larger charitable deduction in year one.
Talk to your financial adviser and do some tax planning now to ensure you have the most effective charitable giving plan to minimize your 2019 taxes and maximize your giving. Don’t procrastinate. Waiting until later in the year may keep you from taking full advantage of this tax-saving tool. Plan ahead, put tax season out of mind and hold out hope that spring has truly sprung.
Phil Hanson is the president and CEO of Truman Heartland Community Foundation, a 501(c)(3) public charity committed to improving the communities in and around Eastern Jackson County through cooperation with community members and donors.