The Tax Cuts and Jobs Act (the “Act”) has left many taxpayers rethinking their tax planning strategies. The increased standard deduction and reduced availability of itemized deductions may prevent taxpayers who have itemized in the past from doing so in the future. The changes have led many to fear that their yearly charitable giving would not net them any extra tax benefits over the new standard deduction. However, there is good news for taxpayers who still want to donate to their favorite charitable organizations and maintain an important tax benefit. Charitable Contributions Still Remain Tax Deductible Although it may be harder to claim, the itemized deduction for charitable contributions still exists in the Act. In fact, Congress actually increased the adjusted gross income (“AGI”) threshold for the deductibility of charitable cash contributions from 50% to 60%. Donor Advised Gift Funds Provide Potential Tax Benefits Hills Bank Trust and Wealth Management offers a low-cost and local solution that can simplify the charitable giving process for taxpayers. The Hills Bank Non-Endowed Donor Advised Gift Fund (“DAGF”) was established in 1997 for donors who desire to make important gifts to 501(c)(3) charitable organizations that are public charities under Section 509(a). “Bunch” Charitable Giving for Tax Benefits The Non-Endowed Donor Advised Gift Fund allows individuals to “bunch” charitable giving in a single year in order to itemize their tax deductions for the “bunch year.” Below are two examples – the first example is without the DAGF and the second example utilizes the DAGF: Navigate the New Tax Code Using Non-Endowed Donor Advised Gift Funds by Hills Bank Trust and Wealth Management Group
Example 1: No Donor Advised Gift Fund (DAGF)
Example 2: Using a Donor Advised Gift Fund (DAGF) Year 1: Taxpayer funds the DAGF with $14,000 and distributes $3,000 to charities from the DAGF. Year 2: Taxpayer distributes $5,000 to charities from the DAGF. Year 3: Taxpayer distributes $6,000 to charities from the DAGF
Year 1: Taxpayer donates $3,000 directly to charities.
Year 2: Taxpayer donates $5,000 directly to charities.
Year 3: Taxpayer donates $6,000 directly to charities.
Example 2 demonstrates how “bunching” allows taxpayers to make multiple years’ worth of donations to the DAGF in a single tax year. In Example 2, the taxpayer contributes three years’ worth of donations to the DAGF during Year 1. The aggregated contribution makes it substantially easier for the taxpayer to exceed the standard deduction threshold and receive a tax benefit for their “bunch year,” while simultaneously allowing the taxpayer to distribute the funds to charities of their choice over several years. Talk to Your Tax Preparer Today An initial donation of $10,000 in cash or marketable securities will open an account within the Hills Bank Non-Endowed Donor Advised Gift Fund. All contributions to the DAGF are irrevocable and non-refundable. Therefore, please discuss your long-term charitable giving plans with your legal and accounting advisors and then contact Hills Bank Trust and Wealth Management at 1-800-899-8858 or Trust@HillsBank.com for more information.
Investment products are not a deposit, not FDIC insured, not insured by any federal governmental agency, carry no bank guarantee, and may go down in value.
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