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C.H. Robinson

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Maximizing Tax Savings for Charitable Contributions

Written by Bruce Primeau on .

Well, Congress took their best shot at tax simplification for 2018 and, by doing so, has changed the way many people will make charitable contributions moving forward. For some, itemizing deductions will no longer be necessary as it will be difficult for them to come up with more deductions that the standard deduction amount affords them. For others that have total itemized deductions close to the standard deduction amount, a new opportunity exists. The opportunity I am referring to is bunching multiple year's charitable contributions into one year. Let me show you what I mean:

  • We have a married couple that typically gives about $5,000 to various charities each year. They usually itemize deductions each year, but in 2018 their total itemized deductions will total only $23,000. So, the standard deduction would be their obvious choice each year moving forward. For the next 3 years, their total deductions against ordinary income look like this:
    • 2018: Standard deduction - $24,000
    • 2019: Standard deduction - $24,000
    • 2020: Standard deduction - $24,000
    • Three year total deductions = $72,000
  • If, instead the couple accelerated their $5,000 annual cash charitable contributions into 2018 using a Donor Advised Fund (DAF), their total deductions against ordinary income would look like this:
    • 2018: Itemized deductions - $33,000
    • 2019: Standard deduction - $24,000
    • 2020: Standard deduction - $24,000
    • Three year total deductions = $81,000

By contributing 3 years' worth of charitable contributions ($15,000) to a DAF in 2018, they get the charitable contribution deduction in 2018, despite the fact that they may give that $15,000 away over the next several years (no requirement to give those funds away in 2018). In total, they receive $9,000 more of tax deductions over the next 3 years, which, at a combined federal and state tax rate of 30%, they would save about $2,700 of tax. Not a bad strategy, given the fact that the client is merely accelerating the cash gifts to the DAF.

Another excellent strategy involving a DAF is to contribute $15,000 of appreciated securities instead of cash. The donor receives the same tax deduction and pays no tax on the $15,000 of appreciated securities they donate. This can be a great diversification technique that can save tax dollars in more than one manner (capital gains tax as well as ordinary income tax).

Please let us know if you have any questions regarding this strategy or if you feel it is one you may want to consider.

North Metro: 763.355.5873
227 East River Parkway
Champlin, MN 55316-5873

South Metro: 612.987.9112
5871 Crossandra Street SE
Prior Lake, MN 55372-3337

West Metro: 763.639.3425
322 Greenhill Lane
Long Lake, MN 55356

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