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Charitable gift strategies for estate planning

With the dramatic increase in the standard deduction, many charities are worried that the tax incentive for donations will disappear, leading to lower gifts.  A large majority of taxpayers are expected to rely upon the standard deduction instead.

Fears of declining charitable gifts may be unwarranted. Many, many Americans are motivated to make gifts to further their philanthropic goals, rather than to secure a tax deduction. Historically, charitable giving has only fallen during times of recession, and even then has remained remarkably strong. 

Still, it is true that some taxpayers augment their charitable giving by the amount of tax savings they generate.  For the tax sensitive donors, one way to get maximum “bang for the buck” is to bunch charitable gifts into alternating years.

Example.  Mr. and Mrs. J donate $15,000 to their church every year.  They have more than $10,000 in other deductions.  They will still itemize their deductions, as their total reaches $25,000.  At a top tax rate of 37%, that deduction will save them $9,250 in taxes, $18,500 over two years.

Now let’s say that this couple doubles up their gift in the first year, and make no charitable contribution in the second year, taking the standard deduction instead.  They will save $14,800 in taxes in the first year, $8,880 the second year, or $23,680 over two years.  Bunching their charitable gifts in this way saves them $5,180 in federal income taxes if they are in the 37% tax bracket.  Those in lower brackets would have less dramatic savings.

For older retirees

Those who are older than 70 ½ and who have an IRA have another alternative available.  They may arrange for a direct transfer of a gift from their IRA to a charity.  The amount so transferred will not be included in taxable income, even though it does satisfy the minimum distribution requirements for those in this age group. 

Because there is no addition to income, there will not be a corresponding charitable deduction.  In effect, the retiree gets the benefit of a full charitable deduction on top of the standard deduction.  This “new math” of charitable giving is expected to significantly increase direct gifts from IRAs to charities.


© 2020 M.A. Co. All rights reserved.
Any developments occurring after February 1, 2020, are not reflected in this article.
Published in conjunction with the Trust Department of CoreFirst Bank & Trust.

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