Sarah: Meet with your tax and business advisors regularly to ensure your assumptions about the law and tax code still hold true because they change all the time. Secondly, if you plan to make a transaction you don’t normally make, meet with your advisors before the transaction occurs and especially before the end of the year. They cannot help you plan the transaction to your benefit if they don’t know about it until after the year’s tax window closes.
Arty: The Tax Cuts and Jobs Act of 2017 effectively doubled the standard deduction. Most individuals now take a standard deduction instead of itemizing their deductions. Itemized deductions typically include property taxes, mortgage interest and charitable contributions. You choose to receive the greater of the two—the big three itemized deductions or the standard deduction. For a large percentage of taxpayers, taking a standard deduction currently provides more benefits rather than itemized deductions, so this has changed their approach to charitable giving.
Sarah: Staying on top of your bookkeeping and regularly reconciling your bank accounts are essential. This is easy to overlook because it doesn’t feel like a priority when you’re busy putting out other fires, but it is vital for staying organized and having all your information ready for your accountant at the end of the year. It saves you a lot of time and stress to manage your books on a regular basis rather than waiting and potentially missing something.
Arty: Those invested in the stock market have unrealized gains from their stocks as prices rise above their original purchase price. If they’re charitably inclined, these investors have an excellent opportunity to give their appreciated stock. Rather than paying income tax on stock profits and then giving the charity what’s left, the donor gets credit on their tax return for the full stock value, and the charity receives the full sum to utilize in their endeavors.
Arty: People donate to nonprofits because they are charitably minded, but they also give because there’s an accompanying tax break. With the double standard deduction, some wonder if they can still fully benefit from their charitable endeavors.
For those who wish to give at regular intervals, donor-advised funds have become increasingly popular. They can contribute a lump sum to the donor-advised fund in one tax cycle, taking the larger itemized deduction. Then they convert back to the standard deduction until itemized deductions are more beneficial. This way, the donor-advised fund can make regular disbursements to the charity, which is now able to continue to run the same budget and expect the same cash flow, but the donor has also worked things in their favor from an income tax standpoint.
Also, retirees who have pre-tax IRAs can direct their Required Minimum Distributions (RMD) directly to 501(c)(3) charitable organizations. This way, the RMD requirement is satisfied, and the RMD amount stays out of taxable income—effectively achieving a charitable deduction regardless of whether you itemize or take the standard deduction.