Question of the Month: Are there different ways to support Giant Steps with the changes in the tax laws?

Answer:

Most of us have now completed our 2018 tax returns. With the changes in the tax laws, one of the incentives for donating to nonprofits has been removed for many people. Unless your itemized deductions were more than $12,000 as a single filer or $24,000 as married taxpayers filing jointly, there is no longer a tax incentive for donating to a nonprofit. Naturally, there are still emotional reasons to give. (Because Giant Steps rocks – just sayin’!)

The increase in the standardized deduction caused many to 1) reconsider their financial plans, and 2) consider using the standardized and itemized formats in alternating years. This is also known as “bunching.” This is particularly relevant for people who are self-employed, have major medical expenses, or donate at higher levels. Under this structure, individuals intentionally push items with tax implications into a single year, and then hold off on such items the following year. This could apply to things like prepaying property tax, pushing medical expenses into a single year, etc. [More here: http://www.shaneybrookassoc.com/9109/Bunching-Your-Deductions-Can-Provide-Big-Tax-Benefits/]

With respect to charitable giving specifically, utilizing a Donor-Advised Fund (DAF) might be an option for you. A DAF is a (1) fund or account owned and controlled by a sponsoring organization, (2) which is separately identified by reference to contributions of the donor or donors, and (3) where the donor (or a person appointed or designated by the donor) has or reasonably expects to have advisory privileges over the distribution or investments of the assets.  While the ultimate decision to distribute and to what organization is made by the sponsoring charity, in most cases, the donor’s advice is followed.  Importantly, a donor receives a charitable income tax deduction in the year of the contribution to a DAF whether or not the contribution is distributed to the charitable organization.  For these reasons, a DAF is a great tool to organize your philanthropy while utilizing the bunching technique described above.

As an example, if you open an account with a contribution of $5,000, you receive the tax benefit in the year you open the account. You can then donate $1,000/year to your favorite nonprofit (Giant Steps, of course). You will not receive a tax benefit in years two through five, but you will be helping Giant Steps to achieve its mission.

For those of you are not in that position, we have conveniently changed our fiscal year from a calendar year to a July 1 to June 30 fiscal year. That way, if you donate $100 between January 1 and June 30, and $100 between July 1 and December 31, they would hit in the same tax year for you, but different fiscal years for us.

It’s a lot. We know. And we are in no way tax professionals, so you should consult with yours before making any decisions. We just want to help you help us.