3 'Don'ts' For Charitable Giving

The Tax Cuts and Jobs Act (TCJA) of 2017 almost doubled the standard deduction and has changed the way most people approach their tax strategies. In spite of the fact that the law reduced tax savings for each charitable dollar, charitable giving has in fact increased, especially through donor-advised funds (DAFs) and the application of wise retirement investment planning.

As 2020 gets underway and tax season draws nears, here are three things to avoid as you plan your giving for the new year:

1. Do not shy away from charitable giving during an election year.

Major election years can leave many nonprofits nervous about the potential for declining contributions. However, smart high-dollar donors who give via their private foundations or donor-advised funds differentiate between supporting charity and engaging politically. Driven donors are knowledgeable about all the available tax-efficient charitable giving tools. Even though the amount of money spent during the 2020 election cycle will undoubtedly be staggering, both private foundations and donor-advised funds will continue to grow. These tools are available to all donors regardless of the number of zeros in their paycheck, though there is a reason that wealthy givers are staying ahead of the curve when it comes to maximizing their tax deductions!

Even better, these avenues are available to any donor, not just the wealthy. Some qualified DAFs, for example, can now be opened for as little as $5,000, allowing donors to wait until they are ready to decide how to distribute their tax-advantaged investment in future years.

Remember, politicians will come and go, but philanthropy has a much longer shelf-life.

2. Do not fear ‘new age’ alternative ways of giving.

Gen Z and Millennial digital natives are increasingly engaging in online giving, this includes both straightforward transactions and social community giving. Moving forward, more and more people of all ages are expected to take up this trend because of its immediacy and convenience. This is especially attractive to those who prefer a more direct and personal approach to giving without concern about maximizing charitable tax deductions. Technology is making the act of giving easier than ever.

It is important to keep in mind that it is charities that absorb credit card and other transaction fees. It can be nice to add a little extra so that they cover their costs.

3. Don’t ignore a IRA tax advantage in the new law.

Some senior taxpayers can sidestep the limitations of the TCJA. An individual retirement account (IRA) charitable rollover allows people 70.5 years of age and older to make direct transfers from their IRAs up to $100,000 per year to qualified charities, without having to count the transfers as income for federal income tax purposes.

Taxpayers may also bunch gifts. For example, a couple with $10,000 of both state and local taxes would have to take the standard deduction if their only other itemizable expenses were contributions of $10,000 a year for each of five years. However, the same couple may give away $50,000 in one year and nothing in the other four — thus they gain the advantages of both the increased standard deduction in the four years that they do not itemize and a deduction for most of their charitable contributions in the one year that they do. This also ensures a consistent revenue stream for charities over subsequent years.

When you think about it, philanthropy is democratic. It is important to remember that anyone can participate in charitable giving — it isn’t limited to JUST the wealthy. Each individual person can use the power of giving to effect change despite, in spite of, or to spite government. There are ways to do it while being smart about taxes.