The demand for charitable donations may be higher now than at any time in our recent history. With more people in need of financial help and fewer people in a position to provide it, it is critical that those of us who can give back are able to stretch our charitable dollars as far as possible. Recent legislation from the Tax Cuts and Jobs Act (TCJA), the SECURE Act, and the CARES Act have all impacted charitable giving strategies, so let’s examine what techniques work best in today’s environment.
Donating Household Items
Hauling our gently used items up to Goodwill has long been a way to secure a small charitable deduction. The deduction for non-cash gifts still exits, but far fewer taxpayers are claiming it since the TCJA was passed in late 2017. Why? The deduction for charitable giving is considered an itemized deduction and far fewer taxpayers are itemizing their deductions today. The TCJA greatly increased the standard deduction so if you don’t have high real estate taxes, mortgage interest, or medical expenses, the odds are you are taking the standard deduction and getting zero financial benefits from these donations.
Tip: Not sure if you itemize? Look for Schedule A on your tax return. If you find it, you itemized last year.
Cash donations are also considered an itemized deduction so just as you won’t get a tax break on your donated items unless you itemize, you won’t get a tax break for sending cash to your favorite charity either. At least that’s how it was until the CARES Act was passed this year. The CARES Act included a new charitable deduction of up to $300 which you can claim whether you itemize deductions or not. This “above-the-line” deduction not only reduces your federal tax but will reduce your state tax as well.
If you give more than $300, you aren’t completely out of options for getting a tax benefit from your cash giving. With planning, you can time the payment of taxes and charitable gifts so that more deductible expenses occur in the same year. This technique often referred to as bunching, seeks to bunch together deductions so you have enough write-offs to itemize in one year and take the standard deduction in the next. For example, if you donate 10% of your income to your church, you might increase that to 20% for one year and then take the next year off. The amount of the gift remains the same, but by altering the timing you can potentially secure a tax break.
Donating Stocks and Other Securities
While it’s less likely you will receive a current year income tax deduction on your charitable gifts, donating stock or other investments like mutual funds or ETFs can be a very effective way to avoid future income tax.
From a practical standpoint, donating shares of stock is relatively easy. After determining the number of shares you want to…