Tax law forces charitable givers to adopt a bunch of new strategies

Charitable givers would be wise to give a little extra before the weekend arrives. Maybe a lot extra.

Changes in federal tax laws taking effect in 2018 are spurring many Kansas Citians to ramp up their charitable donations before the new year rings in on Monday. That way, they can write off the gift from their 2017 taxes — an option that may be unavailable in future years.

For Doranne and Randy Hudson, congressional passage of the tax overhaul prompted the sale of some stock holdings so they could pour extra money into a fund that distributes their gifts to several local organizations.

“The new tax law has significantly changed our approach,” said Doranne Hudson, a teaching professor at the University of Missouri-Kansas City’s Bloch School of Management.

Their new approach is called “bunching.” And it’s been all the rage this month at the offices of the Greater Kansas City Community Foundation, which manages the Hudsons’ gift-giving account, known as a donor-advised fund.

More on bunching later. First, just how do the new laws affect charitable write-offs?

The bill Congress passed last week will raise the standard deduction on future tax returns to $12,000 for individuals and $24,000 for married couples. That change will eliminate for millions of Americans the need to list and itemize deductions for property taxes, mortgage interest and charitable giving — simply because they’re better off taking the standard deduction.

But charities around the nation are worried that small and moderate donors will cut back on giving because of the loss of a tax incentive.

In some cases, local donors are now making contributions they would otherwise be sending next year.

City Union Mission on Wednesday received more than 1,000 pieces of mail offering donations, about 300 higher than what the shelter would normally collect this time of year.

“It’s never been this heavy,” said mission staffer Bob Wassam.

Beyond 2017 your best option might be to bunch, financial planners say.

It works this way: Through a donor-advised fund you can funnel multiple years of charity support into one year — 2018 if you choose. If the contribution is large enough, your 2018 write-offs would allow you to itemize instead of take the standard deduction.

The money you put into the fund in 2018 would continue to support your favorite charities on a regular schedule in subsequent years, when you would go back to the standard deduction.

“Instead of giving, say, $9,000 to charity every year, you could give $18,000 every other year,” said Richard Ong of Ong & Company certified public accountants in Overland Park.

The Hudsons have arranged for their fund to spread across four years of giving. “After four years we’ll bunch some more,” said Doranne Hudson.

At the community foundation, which manages charitable giving for local organizations and individuals, call-takers have been swamped with questions from donors about bunching and how to retain some tax benefit with their gifts, said foundation president Debbie Wilkerson.

“We’ve had donors at every level of the giving scale setting up these funds,” she said. “It’s fantastic.”

Fantastic, at least, for donors with the resources to make a lump-sum payment that will allow them a tax write-off that exceeds the standard deduction.

“If you’re giving less than $2,500 a year (bunching) is not worth it,” said accountant Ong. “For a lot of those folks, that tax incentive to give to charities will go away.”

But area charities hope that small donors will still keep giving.

“I think the entire charitable sector is holding its collective breath on this,” said Joanna Sebelien, chief resource officer for Harvesters, the Community Food Network.

Proponents of the federal tax bill say it will provide Americans with more disposable income, which could increase charitable giving.

“For the most part people give to a mission because they believe in the mission” and not to reap tax advantages, said Tom Daniels, finance director for Metro Lutheran Ministry.

Those looking to squeeze in one last 2017 donation by mail, the clock is ticking. Post offices will be closed Sunday and on New Year’s Day. “Saturday,” Daniels said, “looks to be the drop-dead date.”

This story was originally published December 27, 2017 at 5:36 PM with the headline "Tax law forces charitable givers to adopt a bunch of new strategies."