Take steps to maximize your giving

The Examiner

I am ready for spring weather. I’m ready for life to get back to normal or at least more normal. If we can all continue to be smart and safe until everyone who wants to be is vaccinated, I think something near normal could be possible by this summer. Fingers crossed and knock on wood.

Phil Hanson

Spring also brings tax season, which is often met with much less enthusiasm than higher temperatures and budding flowers. But there have been a few tax changes related to charitable giving that are worth noting. First, for the vast majority of people who can no longer itemize because of the higher standard deduction, there is a 2020 Universal Charitable Deduction available which provides $300 for individuals and $600 for couples. Even if you cannot itemize, you can take this deduction in 2020 and again in 2021 as this provision was extended in the December stimulus plan legislation.

Second, for those of you who are generously supporting your favorite charities and find as you prepare your tax return you still cannot itemize your deductions, now is a good time to do some tax planning for 2021. Charitable bunching, utilizing a donor-advised fund, is a tax-planning tool that is growing in popularity. Like a charitable savings account, a donor-advised fund is just like having your own private foundation – only better and much simpler. In addition to allowing you to become more organized and strategic with your charitable giving, a donor-advised fund coupled with a "bunching" strategy provides a way for you to maximize your tax benefits.

Gifts to a donor-advised fund are immediately tax-deductible. With a "bunching" strategy, you can use your fund to contribute multiple years' worth of donations in one calendar year, enabling you to exceed the standard deduction in that year. You then can maintain your regular support of your favorite charities through grants from your fund over several years. You claim the standard deduction in the years you don't bunch your charitable gifts.

Let's look at the example of a couple with state and local tax deductions, plus mortgage interest deductions that total $18,000 per year ($10,000 SALT, $8,000 mortgage). They are charitably minded and generously donate $7,000 to support their church and favorite charities, which gives them $25,000 total in itemized deductions. However, since the standard deduction is now $25,100, they cannot itemize. 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 $39,000 in deductions this year and could itemize and receive the additional tax deduction of $13,900. In the next two years, they would take the standard deduction on their tax return. They would continue to donate their typical $7,000 each year to their favorite charities through grants from their donor-advised fund. The fund resources are invested and will have the opportunity to grow tax-free, resulting in more money available to support both their church and chosen causes.

Additionally, a donor-advised fund offers an opportunity to maximize the power of your charitable contributions with gifts of non-cash assets. By donating appreciated securities, such as stocks and mutual funds, directly to your fund, you can gain considerable tax advantages. You avoid the capital gains taxes and receive the charitable deduction for your gift's fair market value.

Talk to your financial adviser and do some tax planning now to ensure you have the most effective charitable giving plan to minimize your 2021 taxes and maximize your giving. Waiting until later in the year may keep you from taking full advantage of this tax-saving tool. 

Phil Hanson is the president and CEO of the Truman Heartland Community Foundation, a 501(c)(3) public charity committed to improving the communities in and around Eastern Jackson County. For more information on charitable giving, visit www.thcf.org or call 816-836-8189.