3 tax reform charitable giving strategies: bunching gifts
First of three-part blog series highlighting philanthropic tax-saving strategies under new tax laws
The Tax Cuts and Jobs Act of 2017 was signed into law in December 2017. It is the first major tax reform act in the United States since 1986 when Michael Jackson and Cyndi Lauper were at the top of the music charts!
Major elements of the act include:
Reducing tax rates for businesses and individuals
Increasing the standard deduction and family tax credits
Eliminating personal exemptions and making it less beneficial to itemize deductions
Limiting deductions for state and local income taxes and property taxes
Limiting mortgage interest deductions
Reducing the alternative minimum tax for individuals and eliminating it for corporations
Reducing the number of estates subject to the estate tax
Repealing the individual mandate of the Affordable Care Act
Before the final version of the Tax Cuts and Jobs Act of 2017 was signed into law, many predicted that it could have disastrous impacts on charitable giving. While there are parts of the final bill that may reduce tax incentives for gifts to charity, there are also changes that increase the incentive for gifts to charity, especially when using new strategies to maximize tax savings.
The three tax-saving charitable giving strategies we will discuss in this series are:
- Bunching gifts.
- Charitable gifts of highly appreciated assets.
- Charitable gifts of IRA assets.
Maximize savings by bunching gifts
“Bunching gifts” refers to planning your charitable giving to exceed the new standard deduction hurdle. In other words, your personal deductions plus your gifts to charity need to be larger than the new, higher standard deduction. Because the standard deduction has almost doubled – $12,000 for singles and $24,000 for married couples who file jointly – and personal exemptions have been eliminated, it is projected that a significantly smaller number of filers will itemize deductions moving forward. This means that fewer people will receive additional tax savings for their charitable giving.
Often, charities like Duke ask donors to make pledges to their organization over a five-year period. This helps the charity in its long-term planning. The bunching strategy allows you to make the same size gift you might have pledged over five years in a shorter timeframe and recognize additional tax savings.
For example: Let’s say you want to make a $25,000 gift to the Sarah P. Duke Gardens through a five-year pledge of $5,000 per year. If your itemized deductions before charity total $18,000, giving a $5,000 per year gift to Duke would not be enough to trigger itemized deductions.
Now, let’s consider that you make the same $25,000 pledge to Duke Gardens. By bunching the gift into the first three years, you would be able to itemize deductions in years 2018-2020 and capture additional tax savings in those years.
Duke University’s Office of Gift Planning encourages you to consult your financial advisor as you explore whether the bunching gifts strategy is right for you.
Follow our three tax reform charitable giving strategies blog series in which we discuss two additional charitable giving strategies. Next month, we will address the tax-advantaged technique of donating gifts of highly appreciated assets like real property and appreciated securities. Please contact a member of our team if you have questions or if we can be of assistance in any way.