Friday, May 31, 2019
Tips for optimizing charitable gifting in light of the new tax laws
For savvy investors, charitable contributions have always been a win/win. Those who donated were able to write off their contributions to lighten their tax burden. And of course, non-profits received much-welcomed donations, allowing them to continue making positive changes in their communities.
If you’ve relied on charitable giving in the past to lower your tax liability, it can still be part of your strategy—with a little creativity.
A Look at Charitable Giving Under the New Tax Laws
The rule hasn’t changed: charitable giving is only deductible if you itemize on your taxes.
But now that the standard deduction has doubled from $12,700 to $24,400 for married couples filing jointly ($12,200 for individuals), many are finding that their donations no longer bring them the tax benefits they once did.
While Americans are enjoying keeping more money in their own pockets, charitable organizations haven’t been shy about expressing their concern.
Amazon Benefits Series
- Tax Implications of Restricted Stock Units (RSUs)
- A Closer Look at Employee Life Insurance
- An Overview of Employee Disability Insurance
Research estimates that charitable giving could drop by as much as $21 billion per year as a result of tax reform. This number assumes that only 5 percent of households will continue to itemize, compared to 30 percent of households prior to tax reform.
That said, the new tax law did increase the incentive for charitable giving in two significant ways. Before, you were only able to deduct charitable donations of up to 50 percent of your adjusted gross income (AGI). That limit has now been increased to 60 percent.
In addition, the Pease limitation that restricted nearly 80 percent of the charitable and itemized deductions for higher earners was repealed. Those who pay high income taxes can now take greater advantage of itemized deductions, including charitable giving.
How Amazon Employees Can Form a New Approach to Charitable Giving
The higher hurdle for itemization doesn’t mean that charitable giving should be cut out of your tax-deduction strategy. Amazon employees should look at combining their corporate benefits with the power of timing to continue seeing a tax benefit for their charitable contributions.
In a previous article, we covered the tax implications of Amazon restricted stock units (RSUs), particularly in years three and four when 40 percent of your shares are vested. It may make sense to gift highly-taxed RSU vests in the year of vesting to a donor-advised fund (DAF).
A DAF is a giving vehicle established at a public charity. Donors use DAFs to make charitable contributions and receive an immediate tax deduction. They can then use the DAF to distribute grants to their selected charities at their discretion. In the meantime, the assets in the DAF are invested and grow tax-free.
Another gifting approach called “bunching” may work well for Amazon employees with large RSU vests.
For example, if you normally give $10,000 per year to charities, you may not be able to deduct that amount (depending on other deductible expenses). But in a high vest year (perhaps year three or four, as previously discussed), why not give five years’ worth of gifting ($50,000 in our example) to a DAF to get the full charitable deduction? This frees you up to take the now-higher standard deduction in the years where you’re not gifting, and you’re still able to give the same amount as you did prior to tax reform.
In other words, you’re “bunching” your charitable giving into a higher lump sum and reducing the frequency of your contribution. It’s better than continuing to contribute $10,000 per year and never being able to claim a deduction.
Putting this money into a DAF ensures you’re able to promise them the same contributions each year, even though you’re not donating money each year. Or, perhaps even more impactfully, you could decide to make larger grants to organizations and help really move the needle on the issues they are addressing.
Non-cash assets are still a tax-savvy strategy in charitable giving. Keep in mind that the laws still limit your appreciated securities to 30 percent of your AGI.
If you’re usually a cash donor, it could be favorable to look at other ways of giving. Using assets means not having to use after-tax income for giving. Plus, you’ll be limiting your capital gains tax when you decide to sell your securities. Not only does this help you reduce your own tax liability, but it can also result in a larger donation to your charities.
Other Charitable Giving Strategies for Amazon Employees
It’s always a good idea to review your tax strategy each year to ensure you’re capitalizing on the best opportunities to reduce your liability.
Whether you mirror some of the examples above or tend to give considerably less to charity each year, it’s important you exercise your options to avoid leaving money on the table.
To make the most impact as a donor to the causes you care about, check out our interview with Philanthropic Advisor Molly Norton. If you need help planning your charitable gifting strategy, schedule a consultation with one of our experts and start making the best use of your Amazon corporate benefits.
Brent Ericksen, CFP® serves as an advisor at Brighton Jones.
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