Will the recent tax proposal kill charitable giving strategies like “stacking”? If you give charitably and want to maximize tax savings you’ll want to stay tuned.

2022 Tax Bill Updates: Will it kill charitable giving strategies like “Stacked Giving”

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Show Notes:

• How Charitable Stacking Can Benefit You

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Anthony Saffer 0:00
Does the current tax bill kill charitable stacking? If you give charitably and want to maximize tax savings, you’ll want to stay tuned.

All right, so there have been a lot of tax bills over the last few years. And people that give charitably, unfortunately, we see that they’re just not getting a lot of tax benefit out of it. Tell us about charitable stacking, because we’ve talked about that before.

Alex Okugawa 0:24
Yeah. So we’ve talked about charitable stacking before. We’ve written posts about it, we’ve made other videos about it, because, you know, it can be an involved strategy, but it’s something that folks should seriously consider. If you’re a charitable giver, you want to do this, but to maximize the tax benefits, cuz that’s a huge thing for you.

Anthony Saffer 0:41
Right, and it is, and to try and save taxes from the amount that you’re already giving that is built-in. And this strategy allows people to maximize those savings. Now, for the tax proposal that’s currently in the Senate, tell us about how this charitable stacking strategy is being affected by what’s being talked about by Congress right now.

Alex Okugawa 1:02
So let’s look at an example. Okay, so when you file your taxes, you have two options for your types of deductions, you can itemize deductions, or you can take the standard deduction. So let’s take a look at an example where we break down the two. Now when you itemize deductions, basically what you’re looking at is four different main types of categories. I know there’s more in there, but let’s just stick to the four main types of categories, which are a medical deduction, a state and local income tax deduction, a mortgage deduction, and then a charitable giving deduction. Now, the total of those four versus your standard deduction, you’re going to take the higher of the two, right, let’s put some meat on the bones. And let’s look at some numbers. Most people have a hard time qualifying for the medical deduction. So for simplicity’s sake, let’s just say it’s zero, state and local income tax. Under the current rule, taxing cuts JOBS Act of 2017, state-local income tax has been capped at $10,000, this has been hurting blue states people those in high-income tax states because you can pay a lot in state, state and local income taxes be capped at 10. Okay, so let’s say 10. There, let’s say 5000. For a mortgage interest deduction, and let’s say you give $10,000 in charitable giving, well, the total of that is $25,000 of itemized deductions, or you could take the standard deduction, the standard deduction for a married couple is $25,000 100. Now you can see the difference here is negligible, and you’re not receiving a benefit for your charitable giving. Now, I’ll say one more thing. A lot of people make the mistake of assuming, well, if I itemize deductions, that must mean I’m getting the full benefit, even if you gave $11,000. Okay, $11,000 of charitable giving. And let’s say this total was $26,000, you can see the delta between the standard deduction, and the itemized deduction is so small, you’re still not receiving the full benefit tax deduction for charitable giving.

Anthony Saffer 1:04
Okay, so the main factor that’s on the table with the current tax bill, is the state and local income tax deduction is likely to increase. How does that affect charitable stacking?

Alex Okugawa 3:07
So if the state and local income tax, you know, goes up, I think right now, it’s proposed at $80,000. So let’s say you’re able to deduct, let’s say, $30,000, of state and local income tax, well, all of a sudden, that’s going to bring up your itemized deductions. And it takes away a lot of the impact and the effect of charitable stacking because now your state-local income tax can, add so much the itemized deduction.

Anthony Saffer 3:36
So, instead of having to double up your charitable giving in any one year to maximize those deductions to get a benefit from your charitable giving, now, it may not be necessary based on your state and local.

Alex Okugawa 3:49
Exactly. But this is where I’d say it is individualized. I mean, it’s so hard to make a blanket statement and say, “Oh, it’s not going to work anymore.” It might work for some people. And it might make a lot of sense because we want to help you get the maximum tax deductions. Just because it’s going to not work for a lot of people doesn’t mean it won’t work for you. And that’s where, you know, we want to look at people’s tax returns to get down in the nitty-gritty, do this nerdy work, and say, Hey, this is how you’re gonna be able to maximize your tax benefits, and also give the most charitably,

Anthony Saffer 4:18
So a lot of times by employing the charitable giving strategy stacking that every other year can save thousands of dollars, but it needs to be looked at, especially based on the tax bill that’s in Congress right now and that may change planning.

Alex Okugawa 4:32
And that’s why we always keep our ear to the ground because tax laws will change. I mean, for example, the great strategy still on the table is qualified charitable distributions, you know, able to give directly out of an IRA to the charity once you reach a certain age, again, still a great strategy. So, just because some tax strategies go away, some charity strategies don’t look as attractive, there’s still a lot on the table, but it has to be looked at for your unique situation.

Anthony Saffer 4:58
These are the types of things that we help people with. If you’d like to talk to us more about your charitable giving strategy, how to save taxes out of that, go to onedegreeadvisors.com we can schedule a quick call. We’d love to talk to you.

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. See our website at onedegreeadvisors.com for full disclosures.

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