With Giving Tuesday upon us, and the backdrop of local reminders that many people are in need of extra support, this seems like a perfect time to consider philanthropic goals and take a moment to review or design a giving plan. Charitable giving can be both personally rewarding and tax beneficial, but new tax rules in 2018 are significantly impacting the tax efficiency of gift planning.
A key tax law change affecting the benefit of charitable gifts is the new higher standard deduction, which along with new caps on other deductions has made it increasingly harder for itemized deductions to exceed the new standard. One strategy to combat this is “charitable bunching,” which we have been discussing with clients and also outlined in our April tax article, Five Actionable Tax-Planning Ideas. This concept of “bunching” is to combine multiple years of intended gift amounts into a single tax year, increasing itemized deductions that year enough to reach above the standard and thus creating a more beneficial tax impact from the charitable gifts.
One of the best tools to use for this bunching technique is a charitable donor-advised fund account. Funding this kind of charitable account with a larger gift amount in one year can facilitate the larger tax deduction, while still providing the flexibility for the donor to distribute chosen amounts to individual charities at self-selected points in time in the future.
The example we described in April is worth repeating: Consider a married couple with itemized deductions of $19,000, before including charitable gifts. If they plan to make yearly gifts of $5,000, none of each year’s charitable gifts would create a tax deduction—their total itemized deductions would not reach above the $24,000 standard deduction for married taxpayers. Instead, if they use this strategy of “charitable bunching”, the couple could group three years of gifts, or $15,000, in one tax year. This would generate total itemized deductions of $34,000, making the extra $10,000 of the charitable gifts now deductible above the standard. Then, the couple can still choose to grant their annual $5,000 to charities each year, along their typical donation schedule.
All tax and gifting techniques require careful forethought and planning. Our wealth management team is regularly on the lookout for new strategies and ideas to help guide in the establishment, modification, or monitoring of a tax-aware, impactful gifting plan. If you would like to discuss your charitable giving or tax–planning issues in more detail or have other year-end planning questions for your individual situation, please contact your Litman Gregory Wealth Advisor.
Investment Key Takeaways—Year-End 2020
Very few (if any) market observers would have predicted a strong market outcome in early 2020, with pandemic fears rampant and the global economy falling off a cliff. But global stocks ended the year at all-time highs with a 16% gain. At Litman Gregory, we “stayed the course” during the volatility, and it proved prescient once again. In this post, we summarize key takeaways from our full year-end investment commentary, offering an overview of financial market performance and our outlook for the months ahead.
Commentary from Our CIO—Year-End 2020
In this year-end commentary, CIO Jeremy DeGroot reflects on the recent challenging and turbulent year and lays out our investment outlook for 2021 and beyond. The strong full-year market returns masked the incredible volatility and stress investors faced earlier in the year. While many risks remain, the early stages of vaccine distributions and economic stimulus are providing a light at the end of the tunnel.
Alice Lowenstein Earns CSRIC™, Sustainable, Responsible & Impact Investing Designation
We are pleased to share that Managing Director Alice Lowenstein has obtained the Chartered SRI Counselor designation, the first major financial credential dedicated specifically to sustainable, responsible and impact investing. This designation demonstrates Alice’s knowledge of SRI principles and best practices.