2017 end of year tax tip: Shift your giving

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DISCLAIMER: I am neither an accountant nor a lawyer. This is just something I came across while calculating our own estimated taxes. I may not have understood it correctly. Your mileage may vary. Consult your own accountant.

Here's something to ponder before they pass the plate this morning in church.

If you currently itemize deductions, but your itemized total is less than the standard deduction recently enacted into law for 2018, it may make save you some money if you shift planned charitable giving from 2018 to 2017.

The standard deduction for 2017 is $12,700 for married filing jointly. For 2018, it jumps up to $24,000, but the standard per-person exemption goes away, and the marginal rates decrease. If you'd have been in the 15% bracket, your marginal rate will drop to 12%, and for the 25% bracket, the marginal rate will drop to 22%.

Let's say your combined property tax rate, mortgage interest, and charitable contributions comes to $20,000 and you're just over the threshold for the 25% bracket, and you expect next year to be about the same. This year, it makes sense to itemize deductions, since they total more than the $12,700 standard deduction. Next year, you'll take the standard deduction. Under these circumstances, it makes sense to shift giving you planned to do in 2018 into 2017. If you shift $100 in giving from 2018 to 2017, your 2017 itemized deductions would increase to $20,100, your taxable income would drop by $100, and your tax would drop by $25. Meanwhile, your itemized deductions for 2018 would drop from $20,000 to $19,900, which is still below the standard deduction of $24,000, so there would be no change to your 2018 taxable income. In this scenario, you could shift $4,000 in giving from 2018 to 2017 and reduce your combined federal tax burden by $1,000 from what it would be if you gave the same amount both years.

There are three key variables: Itemized deductions for 2017, expected deductions for 2018, and amount of giving shifted. If your itemized deductions for 2018 are likely to top $24,000, shifting a dollar of giving from next year to this only saves you 3 cents, the difference between old and new marginal rates. The maximum benefit from this approach, where the amount shifted would result in a tax savings equal to your current marginal rate times the amount, would be derived from shifting enough to bring your 2017 itemized deductions above $12,700, and bringing your expected 2018 deductions below $24,000. Shifting $7,300 in giving from next year to this year would save you that amount times your current marginal tax rate.

So where should that extra 2017 giving go? Many non-profits have matching gift challenges in effect, with donors pledging to match gifts, sometimes by multiples.

Consider benevolence ministries like John 3:16 in Tulsa that provide relief while helping people develop the skills and self-sufficiency to stay out of poverty. Pregnancy resource centers like MEND are essential to supporting young women who find themselves pregnant in less than ideal circumstances, ensuring that they and their babies get off to the best possible start. Ministries like Crossover Community Impact combine several missions to meet the spiritual, physical, and educational needs of their communities.

Nothing can be more important that having God's Word in the language you speak from the heart. Americans are blessed to have multiple translations available in English, but many languages have no Bible at all or only portions. Wycliffe Bible Translators are working to change that, and at the same time helping to document and preserve many minority languages under pressure from urbanization, globalization, and cultural homogenization.

Think-tanks like OCPA, AFP, and Heritage Foundation do the research that legislators need to produce good laws that protect our freedom and use our tax dollars wisely.

As the culture becomes increasingly hostile to Christianity, organizations like Alliance Defending Freedom and Home School Legal Defense Fund will play a growing role in protecting our ability to live our lives in accordance with the dictates of our consciences.

Other organizations are striving to influence the culture:

Christian education at any level (e.g. Augustine Christian Academy, Oklahoma Wesleyan University, Hillsdale College) is worth supporting, so that more children and college students can afford to benefit from an educational environment grounded in the truth. In Oklahoma, donations to qualified opportunity scholarship funds can qualify for tax credits and make K-12 Christian education affordable for more children.

Fellowship for Performing Arts produces award-winning theater productions designed to entertain and engage diverse audiences from a Christian worldview.

I could name many other excellent organizations, but these are a few that are worth your consideration, as you consider your year-end giving.

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This page contains a single entry by Michael Bates published on December 31, 2017 1:03 AM.

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