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Itemized deductions charitable gift strategies

By Cynthia Turoski, on December 18th, 2018

The new tax law brought a higher standard deduction and a $10,000 cap on the combined state income tax and property tax deduction. As a result, fewer individuals will be claiming itemized deductions for 2018, especially if they have paid off their mortgage.

Don’t give up hope. There are still ways to benefit from charitable contributions even if you are not itemizing.

  1. Highly appreciated publicly traded stock – Rather than sell the stock, realize the capital gain and donate the net cash, or donate the shares of stock. You’ll get a deduction for its fair market value and forever avoid the capital gains tax. You realize tax savings. It is even better if you itemize.
  2. Bunch donations and leverage the high standard deduction – Rather than make donations each year, bunch them into this year and take the high standard deduction next year. You can either donate it all directly to charity this year and none next year, or you can donate next year’s amount to a donor-advised fund (DAF) and distribute it to charity from the fund next year. You still get the charitable deduction this year and the charity gets money each year to meet their cash flow needs.
  3. Donate directly from your IRA – Once you’ve reached age 70.5, you’re eligible to donate up to $100,000 per year to charity directly from your IRA or inherited IRA. Though the donation isn’t deductible, the distribution isn’t taxable. This keeps your AGI and taxable income down for other purposes (i.e. taxation of Social Security benefits, triggering net investment income tax, phase-outs related to AGI floors, etc.). If you don’t need your required minimum distribution (RMD), this can count towards the RMD so you don’t have to take further distributions.
    Note that the donation can’t be to your donor-advised fund or private foundation.
  4. Add to your existing charitable remainder unitrust or private foundation – You can add to these vehicles to benefit charity later but still get the tax deduction this year.
  5. Fund a charitable lead annuity trust to make your charitable contributions – Fund a charitable lead annuity trust with some of your portfolio that would otherwise kick off investment income reportable on your tax return. Have the trust make your usual annual charitable contributions. You’ll be carving that investment income and your charitable contributions off your tax return and onto a separate trust tax return. Possibly, the charitable donations can fully offset the investment income so there is no trust taxable income. You’ll benefit from avoiding investment income from being taxed to you – a tax benefit even if you wouldn’t have personally benefited from a charitable contribution deduction.

Time is of the essence if you wish to take advantage of these strategies. If not, you can always keep them in mind for next year.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Jess LeDonne
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