You shopped ‘til you dropped on Black Friday (we know, you snuck out of Aunt Edna’s Thanksgiving dinner to start early) and continued to score deals on Small Business Saturday and Cyber Monday. Do you even have any leftover money for Giving Tuesday? And, if you do, does it make sense to give when you may not get a tax deduction for it?
Even the most charitably-inclined among us want to get the most out of our hard-earned money. But when the Tax Cuts and Jobs Act passed in December 2017 — almost doubling the standard deduction for each filing status — it impacted a key giving incentive: Charitable deductions. It dramatically raised the bar on how much an individual had to give to get a tax break.
Thankfully, Giving Tuesday need not suffer from changes to the tax code. Here are two charitable giving strategies you can use to make the most of your donation dollars.
Cluster your donations in a single tax year
One way to itemize your deductions is by doing something called “lumping and clumping,” and I’m not talking about the mashed potatoes from Thanksgiving dinner.
The idea is to lump your deductions and clump your charitable contributions into a single tax year so that your deductions exceed the standard deduction, allowing you to itemize. (The 2019 standard deduction for single taxpayers is $12,200, $18,350 for heads of household, and $24,400 for taxpayers who are married filing jointly.) Then the following tax year, you could hold off on lumping and clumping and instead, claim the standard deduction. Depending on your financial situation, you could elect to make your charitable contributions every other year, or even every third or fifth year. It’s up to you!
DIVE DEEPER: Read the HerMoney tax explainer on lumping and clumping.
Set up a giving fund
With the lump and clump method, tax-friendly donations are made only in years when your itemized deductions exceed the standard deduction. A donor-advised fund allows you to give money to your favorite charities every year.
The tax deduction comes in the year that you make a charitable contribution to the fund. After that, you can then distribute money to your favorite charities whenever you want. You can give immediate grants, or wait until subsequent years.
Donor-advised funds are becoming a popular giving tool: After the law change, Schwab Charitable reported that contributions to Schwab Charitable accounts increased 9% from fiscal 2017 to 2018, and a whopping 30% in fiscal year 2019 compared to the previous year.
For a charity, it makes absolutely no difference on their end how they get their money, whether it’s from you as an individual or from your donor-advised fund.
GET THE DEETS: Donor-advised funds explained in plain English
Giving strategies may be different than they were just a few years ago, but Giving Tuesday isn’t going anywhere. So, sit down, relax, enjoy those Thanksgiving leftovers and know that you can still be charitable and tax savvy this year. Also, we know that a tax deduction is hardly the only reason people give — you’re obviously free to donate any amount, at any time you please. Your gifts, large or small, are always appreciated.
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