Charitable Contribution Bundling
Recent changes in the federal tax code have raised the amount of the standard deduction compared to past years. At the time of this writing, the federal standard deduction is $12,400 per year for single taxpayers, and $24,800 per year for married couples.
One of the implications of claiming the standard deduction is that the taxpayer does not benefit by itemizing deductions for his or her charitable giving. This may cause taxpayers to lose at least some of their incentive for giving generously to charities. Less giving from donors naturally has an adverse economic impact on churches and other charities.
While some donors will choose to give to churches or other charities out of a sense of spiritual or ethical duty even if they do not realize a tax benefit for doing so, there is little doubt that the number of donors, and the financial amount given by those donors, decreases without the incentive of itemizing charitable deductions.
However, there is a practical tax solution that can help further incentivize charitable donations for some taxpayers. Some donors may be able to “bundle” their charitable giving such that a larger amount occurs in one particular tax year, and a lesser amount is given in an adjoining tax year (in other words, the year before or the year after). This increased giving in one tax year may be enough to trigger the opportunity for the donor to itemize their charitable donations in the tax year with the larger giving. Then, in the year with the lower charitable giving, the taxpayer can plan to use the standard deduction.
For example, if an individual taxpayer plans to give charitable donations in a particular year such that the taxpayer would qualify for $10,000 in potential itemized deductions (and for the sake of the example would not qualify for any other itemized deductions), then the taxpayer would not opt to itemize since the standard deduction of $12,400 would be greater. However, if the taxpayer instead opted to give charitable donations that year such that the taxpayer would qualify for $20,000 in itemized deductions, then that taxpayer would benefit from itemizing those deduction that year. Then, in the following year, if the taxpayer did not have any itemized deductions based on charitable giving, that taxpayer could use the standard deduction of $12,400. The charities still receive about the same economic benefit over a two-year period as if the donor has spread the donations over the two years, but the taxpayer realizes greater tax benefit.
As with any area of tax planning, it is highly advisable to consult with a tax professional in order to ensure that you are properly planning any charitable giving bundling, and that you do so within the bounds of all tax laws. It may also be very helpful to advise the recipient church or other charities of the your intended schedule for giving. Your notification will assist the recipient organizations with proper budget planning.
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This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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