How To Maximize Your Charitable Giving Under the Tax Law

November 25, 2019

Giving season is here, and savvy taxpayers are finding loads of ways to make charitable giving work for them and the causes they believe in.

For more than 70 years, UNICEF has been putting children first, protecting their rights and providing the assistance and services they need to survive and thrive.  

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When the Tax Cut and Jobs Act passed in 2017, the impact on nonprofit organizations was uncertain. With the standard deduction for individuals and married couples nearly doubling — to $12,000 and $24,000 respectively — fundraisers feared that those who have used charitable deductions to bring down their tax bill would no longer see the need to do so.

Plus, now that there are no more deductions for interest and state and local income tax, it's harder for taxpayers who do itemize to clear the higher deductible thresholds.

Nearly two years later, as the giving season kicks off, the impact of tax reform is an open question. According to Giving USA, studies suggest that the number of households that itemized their deductions in 2018 — estimates range from 16 to 20 million — did fall over 50 percent from what it was in 2016, removing what had been a powerful incentive for charitable giving. 

Nevertheless, the massive drop in donations that nonprofits and charities feared failed to materialize.

Giving USA 2019: The Annual Report on Philanthropy for theYear 2018  found that American individuals, bequests, foundations and corporations gave an estimated $427.71 billion to U.S. charities in 2018. That's 0.7 percent more, measured in current dollars, than the $424.74 billion contributed in 2017. When adjusted for inflation, total giving did decline 1.7 percent. 

How to Make Charitable giving work for you under the new tax law:  

  • Bunch your donations

  • Investigate donor-advised funds

  • Give stocks and bonds

  • Work your IRA

  • Calculate the tangible and intangible impact of your giving 

  • Seek qualified professional advice

“After reaching record-breaking levels of giving in 2017, American individuals and organizations continued their generous support of charitable institutions in 2018,” said Rick Dunham, chair of Giving USA Foundation and CEO of Dunham + Company. “However, the environment for giving in 2018 was far more complex than most years, with shifts in tax policy and the volatility of the stock market. This is particularly true for the wide range of households that comprise individual giving and provide over two-thirds of all giving.”

The long-term impact of tax reform on charitable giving remains to be seen. But what is clear is that tax breaks aren't the only reason people give. And that with careful planning, it's still possible to donate to causes you believe in and get a nice tax break, too. 

Here are some charitable giving strategies from experts and trusted sources that can help you do both:

Bunch your donations

Under the 2017 tax law, taxpayers need more itemized expenses to make foregoing the higher standard deduction worth it. If you’re not used to itemizing, that can be tough. Especially since many deductions people used to take have been eliminated, like mortgage interest over a certain amount, state and local income tax and personal exemptions.

One smart way to surpass the standard deduction is to “bunch” all the charitable donations you might make over multiple years into one. That way, you can still support causes you believe in while preserving your itemized deductions.

To bunch your charitable gifts, you need to set up a donor-advised fund, from which you can make yearly grants to nonprofit organizations, as long as they are an IRS-qualified 501(c)(3) charity.

Donor Advised Funds — flexible, easy to manage, convenient

Donor-advised funds (DAFs) — investment accounts consisting of cash, securities or appreciated assets — are offered by many financial institutions, including Schwab, Fidelity and Vanguard, to name a few. DAFs are a great way to keep giving and getting the tax advantages that itemizing can bring. Another benefit: Your donations are invested, so your deposits can grow tax-free. And, according to Fidelity Charitable, by “contributing long-term appreciated assets such as bonds, stocks or real estate, fund donors can avoid the 20% capital gains tax and 3.8% Medicare surcharge they would have incurred by selling the assets.”

These benefits have made donor-advised funds increasingly popular this year and child rights organizations like UNICEF USA and other charities are reaping the benefits. According to National Philanthropic Trust’s 13th annual Donor-Advised Fund Report, grants from DAF accounts to qualified charities totaled $23.42 billion in 2018, an 18.9 percent increase compared to $19.70 billion in 2017. 

“DAF donors are highly committed, engaged philanthropists," says Eileen Heisman, President and CEO of National Philanthropic Trust. "They’re recommending more grant dollars than ever, choosing impact investments for their DAF’s charitable assets at an increasing rate, and donating complex assets, like business interests and real estate, to fund their philanthropic giving. It is inspiring when donors are creative while increasing their charitable impact.”

Give stocks and bonds 

Appreciated securities are another cost-effective way to make a charitable gift, especially for investors whose stock market wins have set them up for the potential of high capital gains. When you transfer ownership of long-term holdings to UNICEF USA, for example, you receive a charitable deduction for their full market value — and you incur no capital gains tax (subject to IRS deduction limits).

Learn more at this link and get assistance with making your gift by e-mailing stockgiving@unicefusa.org or calling Probyn Cope at 212.922.2470.

For taxpayers over 70½: Work that IRA

If you are over the age of 70½, you can make donations from your IRA accounts without paying taxes on the funds you withdraw. The money you would have had to pay to the IRS could then be used to increase your charitable contribution and get around required minimum distributions that would be taxed as income.

To find out if any of these strategies are appropriate for you, consult your tax advisor. But make sure to get the ball rolling soon so you'll have plenty of time to take advantage of these options before the end of the year.

Invest in the happiness of children — including your own

While this may qualify more as life — not tax — advice, involving children in giving back is an effective tool for producing future happiness. According to a report released by Fidelity Charitable, 48 percent of people who experienced strong giving traditions as children go on to donate $5,000 or more annually to charity — and consider themselves to be very happy adults!

And if your cause is the well-being of children, desperate conditions around the world make giving to UNICEF now more important than ever.

  • In the Democratic Republic of Congo, the second-deadliest Ebola outbreak in history and 200,00 cases of measles threaten public health, and more than 1 million children under the age of 5 suffer from severe acute malnutrition (SAM). Among the first responders to the Ebola outbreak, UNICEF has vaccinated more than 1.4 million children and helped treat more than 169,000 children with SAM, curing nearly 83 percent.  

  • In Yemen, children have suffered terribly during more than four years of conflict – which have brought public services to the brink of collapse. One in every 37 newborn babies dies before turning 1 month old. Without UNICEF, which provides everything from electricity and medicine to supplies and incentives for health workers, some hospitals would close.

  • In Syria, nearly nine years of war have left five million children in need of humanitarian assistance. Half of all health facilities are nonfunctional, and one in eight children are chronically malnourished. In the northeast, the number increases to one in five. Escalation of hostilities in northeast Syria have displaced over 108,000 people, leaving some 45,000 children extremely vulnerable. UNICEF and partners are helping to care for families by providing lifesaving water, sanitation, health, nutrition and child protection services and supplies, as well as much-needed children’s winter clothes. 

Please help UNICEF continue that important work and give the world's most vulnerable children the healthy, happy and safe childhoods they deserve. 

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Top photo: Rafi, 3, holds a box of winter clothing that his family received from a distribution at Kawergosk Syrian Refugee Camp in Erbil Governate in the Kurdistan Region of Iraq. © UNICEF/UN042749/Khuzaie