Ask Matt: How Did the Tax Cuts and Jobs Act Affect Charitable Giving?

 In Retirement Planning & Wealth Management

In the wake of new tax legislation, retirement and wealth strategies expert Matt Sommer explains why it may be time to consider a new charitable giving strategy.

Question: What adjustments should I make to my charitable giving strategy – given the effects of the Tax Cuts and Jobs Act?

It’s natural to think about charitable giving at this time of year. Individuals may be more likely to open their hearts and wallets around Christmas, or start the new year off on a philanthropic note with an early January donation. They may have even made a resolution to that effect. As this is the first year affected by a new, higher standard deduction threshold, it’s also the perfect time to solidify an alternating-year giving strategy – also called “bunching” or “lumping” – so your clients can continue to receive their customary tax benefit.

Although many things have been simplified by the introduction of the Tax Cuts and Jobs Act of 2017, some of these simplifications may still impact your clients. For example, the act increased the standard deduction for individuals to $12,000, with the number for couples going up to $24,000. With state and local tax limited to $10,000, the wild card is charitable giving.

I recently had a conversation with an advisor about one of his more philanthropic clients. She’s married, and since they have paid off their house, they don’t have any mortgage interest to write off. Additionally, state tax is limited to $10,000 in a high-valued real estate market.

They normally give $10,000 to a charity, but the math doesn’t add up – the charitable donation plus the $10,000 in state taxes still doesn’t reach the $24,000 minimum. By foregoing a donation of $10,000 one year and instead doubling the amount and giving $20,000 every other year, our married couple would be able to alternate between itemizing and taking the standard deduction. This allows them to clear the $24,000 standard deduction hurdle.

This tactic isn’t revolutionary by any means, but the new legislation has made it a more relevant topic, and not just when it comes to charitable giving. The threshold for health care deductibility is set to increase starting in 2019, so bunching procedures or other health-related expenses into one tax year may be another way to benefit.

The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a professional advisor. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.

C-1218-21260 06-30-19

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