Donors should do these things before Dec. 31

Consider these tax-smart charitable strategies before the year comes to an end.

by Robert Heuermann, Executive Director

Important tax-planning decisions depend on the actions you take before the end of 2019. That’s because Dec. 31 is the deadline for implementing certain strategies that may help reduce your taxable income, increase your allowable charitable deductions, and keep more of your income for you. Consider these tax-smart charitable strategies before the year comes to an end.

1. Determine if you will itemize or take the standard deduction

Now is the time to determine if it makes sense for you to itemize on your 2019 return or take the standard deduction — which nearly doubled under the 2017 tax law. The standard deduction for 2019 is $12,200 for individuals and $24,400 for married couples filing joint returns. You may be able to deduct your charitable donations but only if you plan to itemize.

2. Consider “Bunching” charitable deductions

Dec. 31 is the deadline for making charitable donations for tax year 2019. If you are on the fence when it comes to itemizing, you may want to explore “bunching” deductions into the current tax year as a strategy to increase your itemized deductions. A donor-advised fund can help you achieve that goal. As the donor, you transfer money or appreciated stock to the fund and then receive a deduction in the year the charitable donation is made. Donor-advised funds can be established through Catholic United Financial Foundation.

For example, let’s say Arnold made a $3,000 annual commitment to his church’s capital campaign over the next five years, for a total of $15,000. Arnold wants to realize a tax benefit from this gift but his annual $3,000 donation is not enough for him to itemize and thus realize a deduction. His alternative is “bunching” five years of charitable deductions into a donor-advised fund in a single tax year. This one-time donation puts Arnold over the individual standard deduction of $12,200 and enables him to deduct his charitable donations in 2019. After donating the full $15,000 in 2019, Arnold plans to take the standard deduction in the remaining years, from 2020 through 2023. Under this plan. Arnold’s church gets an annual disbursement of $3,000 from his donor-advised fund for the next five years and Arnold realizes a tax benefit now. In order to affect his 2019 tax situation, Arnold made sure that the donor-advised fund was set up and his donation was made before Dec. 31, 2019.

Now is the time to determine if it makes sense for you to itemize on your 2019 return or take the standard deduction — which nearly doubled under the 2017 tax law.

3. Make a Qualified Charitable Contribution (QCD)

If you’re over age 70 ½ and have an individual retirement account (IRA), a qualified charitable contribution (QCD) may be a more beneficial way to satisfy your charitable giving goals, especially if you don’t have enough deductions to itemize. With a QCD, the custodian of your traditional IRA makes distributions directly to a charitable organization on your behalf. The advantage here is that distributions paid directly to a charity are not taxable and will count toward your required minimum distribution (RMD) for the year. You can direct all or a part of the RMD (up to $100,000 per tax year) to a qualified charitable organization and you will only be taxed on any remaining portion of the distribution that you received.

4. Set up a charitable life insurance policy.

You may also be able to create a charitable life insurance policy with the Foundation and Catholic United Financial using your QCD. A charitable life insurance policy may allow you to provide an estate donation to your parish, catholic school, and charities of your choice. You need to arrange a direct transfer by the IRA trustee to the Foundation by Dec. 31. Remember, the check has to go directly from your IRA to the Foundation; if the check is written out to you it will count as income.

Contact your Catholic United Financial Sales Representative to learn more about creating a donor-advised fund to bunch your charitable deductions or learn more about QCDs and charitable life insurance. Or, contact me directly at foundation@catholicunited.org or at (651) 765-6548. We’d be happy to show you how to pay less on your taxes and give more than you thought possible to the church or charities of your choice.

This information is not intended to be a substitute for specific individualized tax advice. I suggest that you discuss your specific tax issues with a qualified tax adviser to see if these strategies make sense for your unique situation. Since tax laws are extremely complex, you should always seek the advice of a qualified tax professional before you make any decisions.