Prior to the Tax Cuts and Jobs Act of 2017, you were probably deducting your charitable contributions to St. Max and any other charities you supported from your taxable income on Schedule A (Itemized Deductions) of your Federal 1040. But the Tax Cuts and Jobs Act of 2017 increased the Standard Deduction to $12,200 for a Single filer and $24,400 for a Married Filing Jointly tax return.
Due to this, itemizing your deductions no longer was advantageous as fewer tax returns had greater than $24,400 in deductions. Did this cause you to no longer provide donations to charities?
Let’s assume you traditionally donate $3,000 per year to a combination of charities, including to St. Max. Let’s also assume you also have the following deductible items:
Summing your donation to these items equals $17,500. Far less than the $24,400 Standard Deduction. So, you would naturally use the Standard Deduction.
Now if you were to contribute 5 years’ worth of charitable contributions to a donor advised fund in one year, you would be contributing 5 x $3000 = $15,000. This amount added to the Property Tax, State and Local Income Tax and the Mortgage interest would provide for a $29,500 Itemized Deduction to your tax return. Considerably higher than the $24,400 Standard Deduction.
You would then donate to your favorite charities (including St. Max) over the next 5 years, for example, by providing grants from your donor advised fund instead of your checkbook.
Subsequent tax years, you would use the Standard Deduction until your Donor Advised Fund has been depleted at which time, you could again reload this fund with 5 years’ worth of charitable contributions and take the Itemized Deduction for your tax return for that 1 year.
Donor Advised Funds can be invested and thus the contributed funds will continue to grow as with any other investment.
Additionally, giving appreciated stock (that is not sitting in a traditional IRA or 401K type of account) to a donor-advised fund, or directly to a charity, gives you a tax benefit even if you don't itemize. By doing so, you avoid having to pay taxes on the capital gains that have accumulated through the years. But if you sell the stock and write a check to the charity instead, you'll have to pay capital gains taxes.
Talk to your trusted financial advisor on how to create your own Donor Advised Fund so you can continue to contribute to St. Max!!
Will these tax savings inspire you to give a little more to St. Max?
St. Maximilian Kolbe Church does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. Consult your tax, legal and accounting advisors before engaging in any transaction.
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