How could year-end giving under the new tax law be different for you?
We’re entering one of the best times of year: the giving season! Even though Sound Stewardship is focused on generosity year-round, Americans up their interest in giving during the winter holiday months. Some of this interest is altruistic: Time spent celebrating with family and friends can prompt us to spread the cheer. But some year-end holiday giving is very practical: Charitable donations must be in by December 31st to be deductible on this year’s tax returns.
At Sound Stewardship, we believe that charitable giving is the critical piece in every family’s financial puzzle. Giving generously is our 7th Sound Stewardship Principle and the culmination of these time-tested financial truths. We give because it honors God. We give because it reflects the reality that all we have is God’s anyway. And we give because it’s good for us, our communities and future generations. Plus, it’s fun to support the causes and organizations you’re passionate about!
That’s why we help our clients give purposefully, efficiently and generously year-round. Not to impress the IRS, but because giving is part of a holistic, wise financial plan. (You could really say giving is the end goal!)
That said, The Tax Cuts and Jobs Act of 2017 has brought up giving questions for many of our clients. On one hand, the law now allows you to deduct up to 60 percent of your income with charitable donations instead of 50 percent. But the new standardized deduction ($12,000 for individuals and $24,000 for couples) is now so high that many people (an estimated 90 percent) will no longer itemize their giving. “Is it still worth it?” some clients ask.
Yes! For all the reasons we talked about above. It would be unethical for us to suggest our clients stop doing something that does so much good for both them and the wider world.
Luke 6:38 says, “Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.” (NIV)
But we’re happy to go in-depth on taxes with clients who want to get technical. Even though our real motivations for giving are much bigger, we do count charitable giving as one side of our Tax Planning Pentagon™. Combining wise charitable giving with other strategies can help manage your taxes. Here are two things to consider when it comes to taxes and end-of-year giving:
- Depending on your tax situation, you may benefit from what we like to call “charitable chunking,” or making one large deductible donation to a donor-advised fund that you can manage your charitable giving from over the next several years.
- If you’re a business owner, charitable giving can also help you manage the new qualified business income (QBI) deduction, or Section 199A. Under the new law, you can deduct up to 20 percent of your “QBI” from sole proprietorships, partnerships, S-corps, trusts and estates. This deduction comes with strict—and sometimes complicated—conditions if your total joint taxable income is above $315,000 (or $157,500 for those filing individually). Things get even more tricky if you top out above $415,000, jointly, or $207,500, individually. Charitable giving deductions can decrease your total taxable income, put you beneath the $315,000 threshold, and maximize your QBI deduction. Again, 199A has a lot of moving parts to its calculation; make sure you talk to a trusted advisor to fully understand how this new provision affects your specific tax situation.
Want to talk more about generosity and all the ways it can enrich your life (way beyond minor tax benefits)? Get in touch with one of our Sound Stewardship Wealth Advisors. We’d love to learn more about your philanthropic passions!
Read more:
Principle #7: It’s not about impressing the IRS
The biggest gift of the new tax law
Five questions you should be asking about the new tax plan
8 ways a donor-advised fund can simplify your giving
Is generosity the secret to wealth?
