Maximize your charitable giving

Special to Atmore News

New Year. New tax laws. How can you maximize your charitable giving?

New York Times recently published an article titled “How to Write Off Donations Under the New Tax Plan: Consider ‘Bunching.’” The article discusses the benefits of opening a Donor Advised Fund at the Community Foundation. These funds allow you to ‘pre-pay’ donations and distribute grants to philanthropic organizations – optimizing your tax benefits while maximizing your giving.

The following excerpt from the article gives an in-depth look at how a Donor Advised Fund could benefit both the community and your own financial circumstance.

The tax plan approved by Congress nearly doubles the standard deduction for individuals and families. That could simplify the filing process for millions of Americans, but it will complicate the giving strategies for many who have made a habit of deducting their charitable contributions.

Under the new bill, the standard deduction — the amount taxpayers can subtract from their taxable income without listing, or itemizing, deductions on their tax returns — will rise to $12,000 for individuals and $24,000 for married couples. That means people who are close to the cutoff may stop giving altogether, as they may no longer see tax savings from their giving. Or they might consider pooling their gifts in certain years to beat the expanded standard amount and maximize their tax savings through itemization.

Earl Molander, a retired business professor in Portland, Ore., has given the situation a lot of thought. Mr. Molander said he donates regularly to a nonprofit organization that funds college scholarships for students at his hometown high school in Marinette, Wis., while his wife supports various health and social causes. They will continue giving under the new tax rules, he said, but will plan to make their donations and itemize their gifts every other year, when they can beat the standard deduction. This year, for instance, they will double up on contributions. Then in 2018, the couple will skip donating and take the standard deduction; in 2019, they’ll make gifts and itemize, and so on.

“It’s what they call ‘bunching,’ in accounting terms,” Mr. Molander said of his strategy. Combined with other tweaks in their schedule of paying property taxes, he said, he estimates the approach will allow the couple to save about $700 a year in taxes over the next four years.

These “bunching” strategies, however, leave open a big question. What happens to the charity or nonprofit organization, which has relied on a steady stream of donations to operate every year?

Enter what’s called the donor-advised fund.

These funds — sort of like personal private foundations, without all the legal and accounting costs — allow contributors to donate money and take a tax deduction in the same year, then pay the money to selected charities over time.

Someone could “bunch” several years of donations to a donor-advised fund into one year, and take the tax deduction, but then have the fund pay out the gift annually in equal amounts. The charity would get the same amount each year, even in years when the donor did not itemize deductions.

The donor does not directly control the money once deposited, but tells the fund’s administrator how to spend it, by selecting an eligible charity and an amount to be donated. The money may also be invested depending on the distribution to the nonprofit group, potentially increasing the amount available for contributions.

‘A donor-advised fund is an ideal solution for this,’ said Timothy M. Steffen, director of advanced planning at Baird’s private wealth management group. Donors can make gifts of cash and securities, such as appreciated stock. Donors, of course, must assess whether they can afford to accelerate donations or whether doing so would impair their cash flow, Mr. Steffen said…”

If you’re interested in setting up a Donor Advised Fund, please contact me at 251-438-5591.

Rebecca Byrne is President and CEO of The Community Foundation of South Alabama.