In the Spirit of Giving
/The higher standard deduction introduced last year left many charitable organizations with looming questions: would 2018 charitable contributions decrease? Is John Q. Public donating for the purpose of tax deductions or in the spirit of giving? After all, it is estimated over 30% of annual giving occurs during the month of December, when taxpayers are scurrying to reduce their tax liability.
Before you make your list and check it twice, think about the best method to give, especially if you are at or near the standard deduction ($12,200 single and $24,400 married filing jointly in 2019). One opportunity is to “lump” donations in alternating tax years. A taxpayer may increase their donation in one year (up to 60% of their Adjusted Gross Income, subject to the type of property donated), to exceed the standard deduction, rather than making donations each year. In the alternating year, when donations are not made, the standard deduction would be taken.
Another way of lumping donations while continuing to give to the charity on an annual basis is gifting up front into a donor advised fund (DAF). The taxpayer will receive the deduction all at once when the donation is made to the DAF, then they can give the money out incrementally over time. This method is more complicated for the taxpayer but allows them to donate annually.
If lumping gifts to exceed the standard deduction is beneficial for the taxpayer but accessible cash is not available without selling stock, it could be most beneficial to donate appreciated stock (direct transfer to the qualified charity or DAF) rather than selling it to donate cash. Because the stock is donated, it is reported at the fair market value as an itemized deduction. However, the gain on the stock is not taxed to the taxpayer nor the charitable organization. It’s a win-win!
A valuable opportunity for those over age 70 ½ is the Qualified Charitable Distribution (QCD), where those subject to take Required Minimum Distributions may make direct contributions from their traditional IRA up to $100,000. When a direct transfer occurs, the donation is excluded from the Adjusted Gross Income, rather than being reported as an itemized deduction. Be sure to notify your tax preparer to ensure the tax return is prepared correctly, because the end-of-year tax reporting document will report it as a normal taxable distribution.
Statistics from the National Philanthropic Trust organization say charitable giving accounted for 2.1% of the gross domestic product in 2018; 68% of total giving came from individuals; and, historically, charitable giving rises about one-third as fast as the stock market. So, did John Q. Public donate as much last year, given the higher standard deduction? For 2018, at least, philanthropy was still alive! American individuals, corporations, and foundations all increased their 2018 giving, much in the spirit of giving.
- Pam Smitson, CPA, CGMA, Smitson Erhart-Graves Financial Advisors
