Greg and Jennifer are in their late 30s and have prudently managed their finances ever since they got married. With the changes in the recent tax laws and while realizing they are just barely able to itemize their deductions on their tax return, they decide to save more taxes by immediately donating to their favorite nonprofit one of their appreciated investments they bought two years ago. This raised the amount of deductions they could claim on their tax return, eliminated the need for them to pay capital gains tax on the proceeds and allowed them to “front-load” some of next year’s charitable giving in order to claim the deduction this year. But even if Greg and Jennifer could not currently use the charitable deduction of the full fair market value of the donation, they still save on the capital gains tax usually associated with the sale of it. After the donation was made, Greg and Jennifer then bought the same donated investment with cash raising the cost basis, something that could really benefit them in the future.
Paul and Sue, both in their 70s, have donated to a local charity for years but with the new tax laws, they can no longer itemize their charitable deductions but take the standard deduction of 27,0001. Being required by law to make a Required Minimum Distribution (RMD) from their Individual Retirement Accounts (IRAs), but not needing the money, they decided to start their charitable gifting from their IRAs. Wanting to be more tax efficient, Paul and Sue learn that they can gift up to $100,000 per year and not report any income on the tax return usually associated with the RMD. They get no charitable deduction for these gifts, but this keeps them from being bumped into a higher tax bracket and potentially keeps their Social Security payments from being taxed.
Cathy loves the work of her favorite charity and supports them whenever she can. As a 74 year old widow, she needs income but her Certificate of Deposit that just matured is only paying about 2%, yet she really needs more return than that to meet her needs. When she found out that her charity can give her a charitable gift annuity (CGA) paying 6.1%2 for the rest of her life, she was most delighted. After all, they were going to get the principal amount after she passed away. Now Cathy can get a predictable income stream and an immediate charitable deduction and knows that her charity will continue to be supported.
The Bottom-line is this: Cash donations might be the most expensive way you give to a 501(c)3 organization because you can’t leverage the gift. In the three examples above, the folks saved additional taxes allowing them to do more with their donations, both now and potentially in the future. While these stories are meant for information only and not as tax, legal or financial advice, they do illustrate some of the ways one can leverage their charitable giving in light of the new tax laws and gifting opportunities. Always consult your financial professional for specifics on your situation. But know most nonprofits have more options available to help you than just processing your check.
1 The 2019 IRS Standard Deduction for Married Filing Jointly is $24,400, plus an additional $1,300 for those over 65 or the blind (24400+1300+1300)
2 That is the rate as of the writing of this article. Rates are contingent on single or joint life, age(s), gift date, etc.