While the Tax Cut and Jobs Act of 2017 should have had the effect of lowering taxes for most taxpayers, the higher standard deductions and lower limits on property tax deductions are a one-two punch for deductibility of charitable giving. For most taxpayers (especially married ones), the Standard Deduction will be, well, the standard. It is hard to reach the $25,000 threshold for deductibility by adding your mortgage interest with the new $10,000 maximum for property and state taxes. For those who support non-profits and unable to breach the $25,000 level, more planning is needed to make those gifts more impactful in lowering your taxes.
One strategy you may want to consider is lumping your charitable giving. One effective way to do this is through a “Donor Advised Fund.” Donor Advised Funds (DAFs) are 501(1)c organizations under which you can maintain an account. Think of it as a simplified charitable foundation but easier to set-up and less expensive to maintain. After funded, the donor can “suggest” donations that the DAF can follow. The best part is that funding your DAF can be done with appreciated assets, forgoing capital gains taxes, and will continue to be invested for future tax-fee gains.
Benefits
· The assets that are contributed to the DAF are deductible at current values in the current year.
· No capital gain liability on appreciation.
· The funds are invested, tax-free. DAF platforms all have a few options for how the funds are invested.
· Grants can be parceled out to charities in increments as low as $50, based on your request at any point.
· Many brokerage firms have DAF platforms that are easy to use.
Drawbacks
· There are some AUM fees charged by the DAF sponsor.
· While the gifting procedure is very easy, bookmarking the donation based on specific events can be a little trickier.
If you are already gifting to charities on a regular basis, it makes a lot of sense to maximize that gifting with the use of a DAF, especially in light of the high Standard Deductions and Property and State Tax limitations.
We would be happy to assist in determining if a DAF would help you in your situation.