Private Client Services

Maximizing the Tax Benefit of Charitable Giving

Posted on December 3, 2019 by

Margaret Amsden

Margaret Amsden

Share This

Charitable Deductions

With the tax law changes that became effective in 2018, the average person has potentially lost the benefit of their charitable contributions. However, there are several very straightforward options that you may be able to take advantage of.

Before discussing the options, let’s take a quick look at what has caused the issue in the first place. Prior to 2017, a married couple filing jointly could itemize deductions if their total itemized deductions (medical, real estate and state income taxes, mortgage interest, etc.) exceeded $12,700. As a result of the Tax Cuts and Jobs Act (TCJA), the threshold a taxpayer must meet prior to being able to itemize almost doubled when it increased to $24,000. To make it even harder to itemize, the TCJA limited the deductible taxes to $10,000. As a result, the number of taxpayers able to itemize decreased by more than 50%.  So, what are the options?

Option #1: Donor Advised Fund

With this option, a taxpayer can take advantage of a Donor Advised Fund (DAF).  A DAF is essentially a tax-deferred investment account where:

  1. The taxpayer takes a deduction when the account is funded, thus accelerating the deductions
  2. The taxpayer can pay the amount out to their charities of choice over a period of years
  3. The money grows tax-free in the account
  4. The taxpayer can name a beneficiary to take over the charitable giving in the case they pass while there are still assets in the account

The reason this creates a benefit is the acceleration of multiple years of charitable contributions allows the taxpayer to exceed the threshold in year 1, and take the standard deduction in future years; thus losing fewer deductions cumulatively.

Option #2: Required Minimum Distributions to Charities

Here, a taxpayer who is over 70 ½ and, as a result, has a requirement to take Required Minimum Distributions (RMD) from their Individual Retirement Account (IRA) can direct those RMDs directly to a charity of their choosing up to $100,000 of RMDs per year. In this case:

  1. The taxpayer’s gross income is reduced by the amount redirected to the charity
  2. The taxpayer does not need to qualify to itemize their deductions to receive the benefit of the contribution
  3. The taxpayer can make the election annually but should do so prior to taking their RMD

This creates the largest benefit because the taxpayer gets the full benefit every year without any loss of deductions.

To illustrate the impact, the example below demonstrates the Base Case (i.e., annual contributions), Option 1 and Option 2 – as outlined above).

Continue the Conversation

To learn more about taking advantage of these planning techniques, contact Clayton & McKervey today.

Charitable Contribution – Funding Options: (Base Case) After Tax Dollars, (2) Donor Advised Fund, or (3) IRA Required
Minimum Distribution (RMD)
20192020202120222023Cumulative Benefit
Base Case:Make charitable contributions yearly with after tax dollars
Adjusted Gross Income$200,000$200,000$200,000$200,000$200,000
State, Local, City Taxes (maximum)10,00010,00010,00010,00010,000
Mortgage Interest5,0005,0005,0005,0005,000
Charitable Contributions15,00015,00015,00015,00015,000
Itemized Deductions30,00030,00030,00030,00030,000
Standard Deduction24,40024,80024,80024,80024,800
Greater of Itemized or Standard30,00030,00030,00030,00030,000
Taxable Income170,000170,000170,000170,000170,000
Option 1:Fund a Donor Advised Fund (DAF) in Year 1, pay annual charitable from DAF
Adjusted Gross Income$200,000$200,000$200,000$200,000$200,000
State, Local, City Taxes (maximum)10,00010,00010,00010,00010,000
Mortgage Interest5,0005,0005,0005,0005,000
Contribute to Donor Advised Fund75,000
Itemized Deductions90,00015,00015,00015,00015,000
Standard Deduction24,40024,80024,80024,80024,800
Greater of Itemized or Standard90,00024,80024,80024,80024,800
Taxable Income110,000175,200175,200175,200175,200
Benefit of DAF (Option 1 vs Base Case)=(a)-(b)13,232(1,248)(1,248)(1,248)(1,248)8,240
Option 2:Fund charitable contributions from IRA as RMD
Adjusted Gross Income (reduced by portion of RMD going direct to Charity)$185,000$185,000$185,000$185,000$185,000
State, Local, City Taxes (maximum)10,00010,00010,00010,00010,000
Mortgage Interest5,0005,0005,0005,0005,000
Charitable Contributions
Itemized Deductions15,00015,00015,00015,00015,000
Standard Deduction24,40024,80024,80024,80024,800
Greater of Itemized or Standard24,40024,80024,80024,80024,800
Taxable Income160,600160,200160,200160,200160,200
Benefit of RMD vs. Funding with After tax dollars (Option 2 vs Base Case)=(a)-(c)2,1002,1882,1882,1882,18810,852
Benefit RMD vs. DAF (Option 2 vs 1)=(b)-(c)(11,132)3,4363,4363,4363,4362,612
Assumptions:Married Filing JointlyGross Income:$200,000
State Taxes:$10,000
Option 2:Taxpayer is required to take IRA RequiredMortgage Interest:$5,000
Minimum Distributions (RMD)Charitable Contribution:$15,000


Share This

Margaret Amsden

Shareholder, Private Client Services

Margaret leads the firm’s private client services group as the point person for individual, estate and succession planning tax strategies.

Related Insights

How to Plan for the 2026 Estate Tax Exclusion Drop

The vast majority of Americans aren’t worried about the estate tax, and with current laws exempting anyone with a taxable estate less than $12.92 million, only a small percentage of Americans have reason to worry. However, according to current law, that $12.92 million amount – also referred to as the estate tax “exclusion” – is scheduled to be cut in half on January 1, 2026.  

by Ben Finzel

Self-Employed? 4 Retirement Plan Options

Self-employment comes with a lot of freedom, but it also comes with the responsibility to save for retirement. Here are four common retirement plan options for self-employed individuals and business owners to choose from. 

by Margaret Amsden

How to Set Up an IRS Online Account for Easy Payments

Dealing with the IRS is intimidating for many individuals. Using the IRS website to create an account provides you with ample time to review your records and complete payments or other activities without the pressure (or wait!) of speaking with an IRS representative to get the identical information.  

by Margaret Amsden

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content