By Tom Kirkpatrick
With the new tax laws, Sue and I are taking advantage of strategies designed to reduce taxes, so we can help St. Barnabas, and other charities we support, receive the maximum benefit. We want to share these strategies as you finalize year-end giving and meet with your tax advisors. This is not tax advice from St. Barnabas; every person has a different situation to discuss with their tax professional.
The average U.S. stock portfolio is up between 25% and 35% since 2016, so you could have individual stocks or funds up 50% over the past two years. Here is how to take advantage of this growth!
Benefits Of Giving Stock To St. Barnabas Instead Of Cash
Making a gift of appreciated stock to St. Barnabas – either to the St. Barnabas endowment fund or as part of your annual pledge – can significantly reduce your tax bill. Many parishioners don’t realize they can donate appreciated stock or appreciated mutual funds that have increased in value to St. Barnabas, and receive a reduction in their tax bill.
If you sell investments that are worth more than you originally paid for them to make a charitable gift, you must pay capital gains tax. If you donate appreciated stock to St. Barnabas instead of cash, you do not pay capital gains tax on the appreciation in the value of the stock.
The chart below shows how donating appreciated stock can increase your tax savings when you itemize deductions. Check with your broker to see if you have appreciated stock you could donate instead of cash, to avoid paying capital gains taxes.
OPTIONS:
This table assumes:
You’re donating $10,000, and you want to pay as few taxes as possible.
You can choose between cash, selling stock that has doubled in value, or directly donating that stock.
You’re in the 24% tax bracket. Click here to find your tax bracket.
You are already itemizing (i.e. not taking the standard deduction).
Benefit Of Doubling Up Or “Bundling“ Your Charitable Contributions Into One Year
Each year, taxpayers can deduct the higher of their actual itemized deductions or the standard deduction. The tax laws that went into effect in 2018 have reduced the number of households claiming itemized deductions on tax returns. The new standard deduction nearly doubled to $24,000 for married joint filing and $12,000 for single tax filers. This makes the charitable deduction by donors a moot point unless you give beyond those thresholds.
Thus, in order to increase tax savings, you may want to change the way you pay your annual pledge to St. Barnabas, and other charities, by doubling up: give two years of gifts every other year.
A married couple claiming the maximum property and state income tax deduction of $10,000, along with a mortgage interest deduction of $10,000, would need to have more than $4,000 in charitable giving each year to exceed the $24,000 standard deduction and make it worthwhile to itemize deductions.
If a couple “doubles up” and donates $8,000 in 2019 to cover two years (2019 and 2020) of charitable pledges, this would reduce their taxable income by $4,000 in 2019, because they are able to itemize their deduction. They would have the same taxable income in 2020. Basically, you strive to maximize your charitable donations every other year.
Doubling up charitable giving in one year can allow you to itemize, reducing taxable income and reducing the tax payment to the IRS. Unless you already itemize deductions every year, we suggest you talk with your tax advisor about doubling up charitable contributions so you can itemize deductions every other year.
Anyone can double up gifts at any time. But, if you double up this year, additional donations, including pre-payment of your 2020 pledge, must be made by December 31, 2019.
We, like many others, tithe to live our life as stewards in appreciation of the gifts God gave to us. Hopefully, these tips can help free up more of your income to give away!
Contact Mary Beth Dauner at finance@st-barnabas.org for instructions on how to gift stock to the church.
Tom and Sue Kirkpatrick