Donation Planning for US Citizens

In this article, our Manning Elliott tax team will take a look at how donation planning for US citizens can be affected by the TCJA, the CARES ACT, and Donor Advised Funds.

TCJA

The Tax Cuts and Jobs Act (TCJA) enacted in December of 2017 significantly changed the way that US personal income taxes are calculated.

One of the major changes was the increase of the standard deduction to $12,000 ($12,400 – 2020) for Single or Married Filing Separate filers and $24,000 ($24,800 – 2020) for Married Filing Joint (MFJ) filers.

This change, combined with other changes to certain itemized deductions, has reduced the number of US taxpayers who claim itemized deductions by more than 15%.

Currently, only about 11% of all US taxpayers take the itemized deductions rather than claim the standard deduction.

Charitable donations are part of itemized deductions and unless the total of your donations and other itemized deduction items is more than the standard deduction, you cannot benefit from the donations you make.

CARES ACT

The CARES ACT can also influence donation planning for US citizens.

Earlier this year the CARES Act created a deduction of up to $300 that taxpayers may take regardless of whether they claim the standard deduction or itemized deductions.

However, if you make significant charitable contributions annually, the better strategy to maximize the tax benefit is to “bunch” the donations in one year for US tax purposes.

For example, if you are an MFJ filer, instead of making a $15,000 donation every year, make a $30,000 donation every 2 years so your itemized deductions will be more than the standard deduction of $24,800.

Donor Advised Funds

There are also Donor Advised Funds to which you can make a contribution.

You will receive a deduction for the year of contribution. The funds can be distributed to the charity over the planned schedule so the charity will receive more annualized funding rather than a lump-sum contribution in any particular year.

If you are required to take minimum distributions (RMD) from your IRA, you can also have the RMD sent directly to a charity. This will satisfy your RMD and also does not require you to include it in your income.

Furthermore, if you do itemize, you can claim the contribution deduction.

Manning Elliott Is Here to Help

Speak to your US tax advisor to see if you may be able to benefit from any of these tax strategies or if you still have questions about donation planning for US citizens.

Please contact the Manning Elliott Tax Team by submitting a contact form inquiry.

This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.