How to give and still get tax benefits.

The charitable contribution tax deduction is a powerful way to fund your favorite charity and receive a tax break. But with recent changes to the tax code, you could have a more challenging time getting the same benefits that you previously could.

The good news is, there’s a way to donate and still get the benefit. You’ll have to do it differently than you may have in the past.

There has been less of a reason to itemize your deductions for taxes since the 2017 Tax Cuts and Jobs Act was passed.  As income tax rates lowered and standard deductions increased, itemizing your deductions, like charitable contributions, could be more work than it’s worth. 

So, how should you strategize your giving for the most significant impact?

Start a Donor Advised Fund (DAF). Here’s how it works:

You contribute a chunk of money into a DAF. This money is earmarked explicitly for charitable contributions. And in the year that you contribute, you’re able to itemize your charitable contributions and receive the tax break.

The money contributed to a DAF is managed by you, and you’re able to give to the charities you believe in whenever you’d like, out of the DAF. Also, it’s tied to the performance of market indexed funds. Meaning the size of your account could grow over time, along with the market.

Even better, you’re able to fund it as many times as you’d like, every year that you want a tax break.

It’s an incredibly powerful tool that helps you support the charities you believe in, all while equipping you to give more in the long run through the tax benefit. 

How to (potentially) multiply your efforts

This strategy becomes even more compelling when you combine it with a Roth conversion strategy. It could decrease your tax burden while arranging your assets to grow tax-free.

Most people don’t think about how much they’ll pay in retirement income taxes, but this could be your most significant expense in retirement.

Before you set up your DAF

You should consider all elements of your financial plan before financing a Donor Advised Fund. You want to be sure to understand the impact and effect this could have on your entire financial picture.

If you’d like to start a Donor Advised Fund, we welcome the chance to sit down and perform a complimentary analysis of your accounts  Start a conversation with us to get started.