MoneyDo: Preplan for charitable contributions in 2017.

Tis the season for good tides, merriment and for some of us…………..donations to our favorite charities.  How do we maximize the tax benefits of these donations?

The prevailing wind from Washington continues to indicate changes in 2018 to our current tax code. If tax reform is passed, we believe taxpayers will see – among other changes – a larger standard deduction and a much smaller opportunity to itemize deductions.

• Currently, charitable contributions are included in itemized deductions
• A taxpayer currently gets to use the larger of the standard deduction or the total of their itemized deductions to decrease adjusted gross income (The total of all the taxpayer’s taxable income sources).
• Currently the standard deduction for married couples is $12,700
• itemized deductions become favorable if they exceed this number
• Among other items, itemized deductions include state taxes paid, real estate taxes, medical expenses, mortgage interest and (of course) charitable deductions.

The proposed changes include increasing the standard deduction to $24,000 and eliminating several itemized deductions such as medical expenses, real estate taxes and state taxes paid.  Essentially any charitable deduction less than $24,000 may not be deductible and anything over $24,000 has a proportionally smaller impact than donations under the current tax law.

Given the proposed changes we suggest taxpayers who are charitably inclined take action in 2017.  Taxpayers are looking at two suggested options to take advantage of the current tax code.

• First, we suggest they simply make their intended 2017 and make their 2018 contributions in this calendar year.
  • We feel the deductions will carry more value this year instead of next year because of the above listed reasons.
• Second, we feel using a donor advised fund may be a good course for some taxpayers.
• A Donor Advised Fund is a philanthropic vehicle established at a public charity.
• It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time.
• Using a Donor-advised fund allows a taxpayer to “front load” several years of donations to a trust.
  • By doing so all of the donations become deductible in 2017.
  • The taxpayer can then forward those donations to a desired charity in later years thus taking a deduction in 2017 for a donation made in 2019 or any future year.