Ever since the Tax Cuts and Jobs Act (TCJA), many taxpayers have shown concern about losing tax breaks for charitable contributions.
However, with the right plan, taxable entities can still benefit from donations.
New law increased the standard deduction to $12,000 for individual filers and $24,000 for married households filing jointly. This increase, plus the elimination of other deductions, means many households will no longer itemize. As a result, many will lose the benefit of their charitable gifts.
However, there is still a way to obtain contributions.
If you bundle several years of giving into one tax year and surpass the standard deduction limit. You’ll have more charitable deductions one year and fewer the next. This strategy works well for households already close to the new standard deduction limit.
Donate in January or December
One approach is to donate at the end of December and beginning of January. This can help normalize cash flow for you and the charity. Just be sure that the charity records the correct date on your receipt.
Donor Advised Funds
You can also bundle your giving in a donor advised fund (DAF). These are available through brokerage firms and community foundations. With donor advised funds, you get a tax benefit for the year you donate, but you have unlimited time to decide how you want to allocate those gifts. This strategy is scalable, so you can have several years of donations into a DAF.
The new law still allows for a tax break, when donating shares of appreciated stock, mutual funds or real estate. By making a charitable gift directly, instead of selling an asset to make a gift, you eliminate the tax consequences.
Businesses still can gain tax benefit from charitable sponsorship, or advertising through a charity. You could, for example, sponsor a golf outing or advertise in the charity’s newsletter. If certain conditions are met, such exchanges are deductible as business advertising. Your charity benefits, and you retain the savings.
Be aware that you can’t inflate the value of a sponsorship or ad. For the promotion to be deductible as an advertising expense, there must be a reasonable expectation that you will receive a proportionate financial return. If there’s a rational reason your company would benefit from a sponsorship, you may be able to claim a deduction.
Talk to an advisor to build your giving strategy and ensure you are meeting any requirements under the new law.