As we approach April 15th, the fact that the sun is setting on a tax code we have known for several decades is becoming very real. After we complete our annual filing to our friends at the IRS, I suspect we will all give a bit more thought as to the personal impact the new tax law will have on ourselves and our charitable giving.
Beginning in 2018, the standard deduction doubles to $12,000 for single filers and to $24,000 for taxpayers filing jointly. Estimates in the financial planning world indicate that this change alone will drive the number of filers who itemize their deductions from 30% down to between 5% and 10%. As fewer taxpayers itemize, one possible (and unintended) effect will be a reduction in charitable donations. All of us at Doyle Wealth Management are concerned about this potential as we, like many of you, are charitably inclined and support the many not-for-profit organizations serving our local communities.
One solution is to establish a Donor Advised Fund (DAF). These funds are created to assist individuals and families with managing their charitable giving in a tax efficient manner. Yes, for most of us who have traditionally given to charities on a transactional basis (clicking through a website, attending a charity auction, etc.) the new tax law will drive us to new behaviors in order to maximize the tax deductibility of our donations.
Here are the basics of a DAF:
· Easy to set up, low cost and flexible.
· Contributions to the fund are tax deductible in the year the contribution is made.
· Assets in the fund are managed by Doyle Wealth Management and grow tax free.
· When you decide to give to a specific organization, you direct the DAF to make the distribution.
Some thoughtful planning will be necessary to maximize the benefit of using a DAF. As an example, say
you typically make annual charitable donations of $10,000, and you are able to itemize these deductions. Under the new tax law you still give $10,000 per year, but you may no longer benefit as your combined itemized deductions may be lower than the new standard deduction. To manage through the new law, perhaps you will consider “stacking” five years of donations ($50,000) into one contribution. The $50,000 is deductible in the year of contribution to the extent your itemized deductions exceed the new standard deduction.
The combined effect of “stacking” several years of donations with tax- free growth means that you will
ultimately leave more to your charities of choice. The potential for growing your charitable contributions on a tax-free basis, before distribution, is appealing. Consider it as “the gift that keeps on giving.”
Also, DAF’s allow for cash contributions as well as contributions of appreciated assets, such as stock,
which can be a powerful planning strategy for those who own highly appreciated stock.
People who are inclined to give do so for many reasons, and the organizations supported by the generous gifts truly need the funding. Here at Doyle Wealth Management, we believe the use of DAF’s will become more popular with our clients given the recent changes in tax law. Donor Advised Funds provide a unique solution to those who want to give in a tax efficient manner. Please call your wealth manager to discuss how a DAF may be appropriate for you.
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