With our house interest payment becoming tiny, and therefore our total tax deductions now crossing over into Standard Deduction territory,, I was wondering how that might effect people still contributing to charities.
ie - if the charity deduction no longer counts, vs using the Standard Deduction, are you still inclined to donate ?
BTW - we're a sucker, and pop $25 for any envelope we receive :)
I'm sure there are some who are going to give less, but that's a shame really. So a worthy charity that I used to give $1000 each year will only get $720 if I can't take the deduction? No, I'll be happy that I have no interest payments for the mortgage, and in the end have more to give. Joe
I really had to go back a read various threads about the whole topic - payoff mortgage vs itemized deduction - SO - here we are with just a trickle in mortgage interest, and this will probably be the first year using the standard deduction.
This year, the standard deduction for MFJ is $11,400. If you are just below this, consider "bunching." In odd years, pay the January of next year mortgage payment. Pay the property tax bill due in Q1 of the next year. Make all your donations for prior year (even year) in January and then for the odd year in December. To be clear, in the odd years you make double the donations, even years none. In the even year, avoid the contributions, and consider making the Q4 property tax payment late, just to push to odd year. In my case, my town's tax is due Nov 1, if I pay on Jan 2 I have 2 mo penalty or 3%. But as a deduction it's worth 25 or 28% to me.
Depending on your exact numbers, this strategy may be worth a couple thousand dollars, or a lot of effort for nothing. For those who tell me they just miss itemizing (I mean numerically, not that they reminisce about it) by a small amount, this is worth considering.
Joe
How can we know if the charity is spending the money in the right way and not supporting a bureaucracy?
-- Ron
Our yearly interest amount has dropped to about $1,540...
Just ran a couple of scenarios with TurboTax, and we are just over the itemized line for this year.
Will see how things shake out for next year with no interest, as the mortgage will be paid off...
Many charities will share their financial statement with potential donors. In addition, googling "charity accountability" produces a number of organizations that seem to evaluate and rate charities.
Dave
That is a good point. A direct gift to a needy person down the street perhaps could do more good than a gift to a charity which uses half the money to support a bureaucracy. Another consideration is to look at why charities are needed in the first place. Perhaps a contribution to a political or advocacy group seeking the better the lot of all the needy people down the street can do more good than a gift to charity.
One of the basketball refs in our town came down with a life threatening debilitating disease. These was a fund raiser which I was happy to go to. All printed matter stated "your kind donations to (name) are not tax deductible." I still gave and was glad to do so.
Register for a free account at Guidestar.org - they compile the tax filings from all nonprofits required to file one (various forms of Form
990). A 990 is a disclosure document required of all nonprofits; it takes time to get familiar with it, but it has enough info to figure out how much goes to programs vs. administration, and see how much the key executives are paid. Guidestar also has a ton of articles on nonprofit administration. Great resource if you volunteer for or donate to nonprofits.-Tad
Another problem is fake charities. Where I live, the police have warned about people going door-to-door asking money for charities that do not exist.
If you are strapped for cash, then reduce your contribution to the after-tax amount. Some is better than nothing.
Actually, the police-named charities are among the biggest scams out there.
You can turbocharge your "bunching" by making big donations, especially of appreciated stocks, to a donor-advised fund. Then your charitable contributions can be made out of that donor-advised fund at your convenience rather than caring about which year to make them. It also very much simplifies your tax reporting - you only report a single contribution to charity on your taxes but make as many distributions as you like.
I'm a big fan. I started my account with some very substantially appreciated stock one year and since then have, when the timing was right with another stock or fund, added to my account. The one I use even generates a pre-filled-in Form 8283 for me.
It's also useful not just for bunching for deduction purposes but also for bunching for income purposes - make bigger contributions in a high-income/high-tax year and if you have a low-income/low-tax year, don't add to the fund that year - but keep making distributions to the charities of your choosing using money which was deducted when it was most beneficial to you.
(appreciated stock gets you the deduction against income as well as never having to realize or pay taxes on the cap-gains - a double win - which would be a huge hassle if you wanted to give some in smaller amounts to several charities, but which is really easy this way)
I totally agree with Bread about using a donor-advised fund. It serves as a buffer to let you make regular contributions to your favorite charities while allowing you to make your contributions irregularly for tax purposes. You get your tax deduction when you make the contribution rather than when the donor-advised fund makes distributions to the charities you specify.
Dave
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