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Save Tax Dollars Through Charitable Giving and Donor Advised Funds

Charitable Donation "Bunching" - Donor Advised Funds

The new tax law (The Tax Cuts and Job Act or “TCJA”) enacted at the end of 2017 raised the standard deduction for married filing joint taxpayers to $24,000 ($12,000 for single). With this new standard deduction comes some planning opportunities.

In addition to the larger standard deduction, the TCJA temporarily increases the charitable contribution limits to 60% of adjusted gross income (up from 50%). An option to consider is to “bunch” charitable contributions in alternating years to get benefit for those charitable contributions. For example, if you are married and typically give $14,000 a year or less to charity and don’t have a mortgage loan, you will likely not be able to itemize deductions in 2018 and going forward. You would be losing out on a tax benefit for your charitable donations. By “bunching” your charitable giving, you will be able to itemize in the years where your charitable giving is higher. You could accomplish this by donating more in cash in those alternating years or you could utilize donor advised funds. Donor advised funds (DAFs) are a way to donate a large sum in one year and get the deduction for it, but then “advise” the fund to actually remit the funds to charities over multiple years. For example if your giving is normally 14,000 a year to a charity as mentioned above, you could “bunch” those donations into a donation to a DAF. By putting an additional $28,000 (or some other amount) in the same year to the DAF, you would be able to itemize that year with the increased donations. You would then be able to continue to send to the charity of your choice the $14,000 annually from the DAF. Over time, you would have donated the same amount of money to the charity with the added benefit of saving taxes through “bunching”. The “home run” in this strategy is if instead of donating cash, you transfer appreciated securities. You get a deduction for the FMV of the stock and the long term capital gain is not taxed! Another note is that if the stock market was to drop significantly after you transferred assets to the DAF, and your fund’s value is significantly less than what you contributed, you still get the deduction of the FMV on the date of transfer. The flip side is that if the stock appreciates, you don’t get that additional tax deduction, but you will be able to give more money to the charity due to the appreciation. Remember that the tax savings far outweigh the costs of the DAF and you still achieve the same charitable giving. There are several donor advised funds to choose from. A prominent one in Kansas City is the Greater Kansas City Community Foundation and their website is here: .

Other donor advised funds that we see our clients using are: Charles Schwab Fidelity Vanguard There are small fees for most DAFs and some limit on what you can invest in. In addition, it does add a step to your process to request the donation to be sent from the DAF rather than just writing a check. We recommend you research what fits you best. Please contact us if you would like to discuss DAFs further.

Home Equity Debt Interest

Another area of the TCJA that we get questions on is home equity debt interest. Under TCJA, home equity debt interest is no longer deductible. However, according to the IRS, interest paid on home equity loans and lines of credit IS deductible IF the funds are used to buy or substantially improve the home that secures the loan. If the home equity loan was used for those purposes, it is treated as home acquisition debt (like your normal mortgage), but it is subject to the new $750,000 mortgage limit (down from $1M) for married taxpayers ($375,000 for single).

The difference in the new law is if you use the funds to pay off a credit card or other personal debts, go on a vacation, or purchase other items. That interest is no longer deductible. In the past, taxpayers would convert personal loans or credit card debt into a home equity loan and would gain an interest deduction. Now, there is no deduction for home equity loans for those purposes and there is no grandfather clause. So, if you had a home equity loan interest deduction on your 2017 return, it may not be deductible in 2018. If it was used for any purpose other than to acquire, construct, or substantially improve your home, it is no longer deductible.

Deadlines are approaching fast!

If you have not submitted your tax information for 2017 for us to complete your taxes, time is running out! Please drop by with your information or upload to your portal any information needed to complete your taxes. Partnerships and S Corporations are due September 17, 2018

Trusts are due October 1, 2018 Individuals and C Corporations are due October 15, 2018

Cornerstone Wealth Advisors - becoming Lumia Wealth

Our friends down the hall are changing their name. Cornerstone Wealth Advisors is now Lumia Wealth.

This past week, Cornerstone Wealth Advisors, LLC officially changed its name to Lumia Wealth, LLC. This is a name change only. They are staying in the same location down the hall from the CPA practice, they are providing the same services and their ownership is the same. For many reasons, they decided to change their name, but chief among them is that Lumia is a unique name in the KC area and Lumia means “light” and “illuminate”. The name Lumia Wealth fits their mission to help their clients create a clear plan to attain their goals. There is NO change or impact to our firm, Cornerstone CPA Group. We just thought we would let people know as they stop by and see a new name on the window for the wealth group. You can read more about Lumia Wealth at

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