By: Kate Hennessy
During this time of year, I think about how grateful I am to have a healthy family. Although our household is hectic, with two young children and a playful puppy, I don’t take our health for granted. While our family makes donations to charitable organizations throughout the year, we tend to donate more of our time and money towards the end of the year. This year our focus will be on charities that provide healthcare and education for children. For those of you that have not made your charitable donations, but intend to do so, I’d like to share three key tips with you:
- Consult With Your CPA – my husband and I met with our tax accountant last month to do year-end planning. We talked about the standard deduction vs the itemized deduction (remember that charitable gifts are tax-deductible). The Tax and Jobs Act which was passed in December 2017, made the standard deduction available to taxpayers much larger than in past years. This change made it less likely that the sum of an individual’s itemized deductions will exceed the higher standard deduction. Close to 90% of taxpayers claim the standard deduction, which is a fixed dollar amount that lowers your taxable income and thus your tax liability. However, if you live in an area with high local taxes or you were very charitable this year, you may benefit from itemizing your deductions.
Charitable Bunching - If your total itemized deduction is greater than your standard deduction, then you should itemize. If you are extra charitable this year - given the higher standard deduction - I would suggest charitable bunching. Charitable bunching allows taxpayers to “bunch” contributions in specific years, while limiting donations in other years. This is an especially important strategy if in a given year you have higher than normal taxable income. Bunching contributions in one year will increase your likelihood of exceeding the standard deduction and provide you with additional tax savings. Keep in mind that itemizing deductions means being diligent about your tax-related receipts.
- Make it Meaningful – choose a charity that is meaningful to you. There is more to philanthropy than lowering your taxable income. As mentioned earlier, this year our focus is on healthcare and children’s education. About seven years ago, our oldest daughter was hospitalized at a children’s hospital. After a series of tests and treatment, she was released and back to being a healthy two year old. The care that we received from the hospital and the education about her disease is something that we will never forget.
- Don’t Fret – if you want to be extra charitable this year, but are still doing your research on charities, one option is to open up a donor advised fund and make a contribution now and then gift to the charities in the future. The contribution you make to the donor advised fund will count towards your charitable gifting this year, while buying you some time to research those charities that are most meaningful to you.
Whether it’s a donation to your child’s school or a contribution to your local humane society, remember that every little bit helps a worthy organization even if it doesn’t give you a tax deduction. Enjoy the holidays!