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.
Our Growing Commitment to the Central Valley
We are pleased to announce that our team is now strengthening our services in the area through the addition of Welz Financial Services, an independent advisory firm in Stockton, as they became part of Litman Gregory effective December 31.
Investment Key Takeaways—Year-End 2018
The financial markets’ roller coaster ride in 2018 ended in downturns almost across the board. A historically high percentage of stock markets and asset classes posted losses for the year, and several fell into official “bear market” territory.
Commentary from Our CIO—2018 Review & Outlook
Throughout the 30-plus year history of Litman Gregory, we’ve emphasized the importance of having a long-term perspective in becoming a successful investor. Chief Investment Officer Jeremy DeGroot discusses our current outlook on the markets across three distinct time horizons.