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Tax-savvy giving after tax reform

Kaitlyn Dormer
Posted by Kaitlyn Dormer on 11:00 AM on May 21, 2018

Affordable homeownership is a game-changer for families. Your support of Twin Cities Habitat for Humanity makes this dream possible for more families. Align your charitable giving with smart tax strategies and the result might include a double win: create more homeownership opportunities, plus potential tax savings for you.

Family working on financial paperwork

Tax Reform Charitable Highlights

Beginning in 2018, the standard deduction—the amount taxpayers can subtract from their taxable income without itemizing deductions on their tax returns—will rise to $12,000 for individuals and $24,000 for married couples. This doubling of the standard deduction will reduce federal tax rates for most Americans.

Good news for many who enjoy making charitable gifts—the charitable deduction was the only widely-used deduction that was retained under the new law. Taxpayers who continue to itemize will still be able to deduct donations to qualified charitable organizations like Twin Cities Habitat.

Every gift to Twin Cities Habitat creates a lasting impact for families through the stability of homeownership. If, in addition to that impact, tax deductions are part of your charitable strategy there are several options available.

Charitable Tax Strategies

Please note that these are general charitable tax strategies. Talk with your financial advisor or tax planner for advice specific to you.

“Bunch” donations

If you do not have enough deductions to itemize every year, consider “bunching” your charitable donations. Double your past giving amounts every other year to maximize itemized deductions for that year. Take the standard deduction in alternate years, when you have fewer itemized deductions. This same strategy could also be used to pre-pay pledges.

Give from a Donor-Advised Fund

One easy way to “bunch” donations is through a Donor-Advised Fund (DAF). Claim the charitable tax deduction when you fund a DAF, and then you can recommend gifts over time. You can even set up recurring grant recommendations instead of a pledge.

Establishing or adding to a DAF can be a great way for donors to charitably offset a year with unexpectedly high earnings, or to address the tax implications of year-end bonuses.

Think beyond cash as a donation

Donating long-term appreciated assets (stocks, mutual funds, bonds) or property avoids capital gains for all taxpayers. Additionally, itemizers can still claim a deduction for the full market value, not just the purchase price.

If you have long-term appreciated assets with an unknown original value, donating the assets can save you the time and trouble of finding out the original basis and paying the applicable capital gains tax.

Direct gifts from an IRA

If you are at least 70 ½ years old, you can make a gift of up to $100,000 each year to Twin Cities Habitat for Humanity directly from your IRA. Qualified charitable distributions may be able to reduce your taxes while fulfilling your required minimum distribution.

This charitable transfer excludes the gift from your gross income for Federal Income Tax purposes and can be especially attractive for donors who do not itemize or would like to keep reportable income down to avoid having social security and other income taxed at a higher rate.

Minnesota state tax considerations

If you do not itemize at the federal level, you may now become eligible for Minnesota’s charitable deduction.

Minnesota’s charitable deduction, also known as the non-itemizer charitable deduction, provides a 50 percent tax deduction for total charitable contributions over $500.

Note: Minnesota tax policy may change if the state lawmakers move to conform state income taxes to the new federal tax policy.

Would you or your advisor like additional information? Have you already directed such a gift to Habitat? Let us know so we can thank you and ensure that your gift will be used as you intend. Contact 612-305-7137 or legacy@tchabitat.org.

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Tags: 2018

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