Accounting for Non Accountants | The Season of Giving


We are back with another episode of Accounting for Non-Accountants! I’m Abby And I’m Emily! Fall is here and that means that the season of giving is right around the corner. There are so many wonderful charities to
contribute to, but the new tax reform is causing some people to hesitate when it
comes to their charitable contributions. We’re here today to tell you that the
tax reform shouldn’t discourage you from donating and there are things that you
can do to make sure you can donate to your favorite charities and still get
that tax break next spring. To make things easier we’re going to walk
through an example. First we have to lay some groundwork. When filing your taxes
one question you have to ask yourself is “What deduction am I going to take?” You can choose between a standard deduction or an itemized deduction. You can’t choose
both so you’ll have to decide which method is going to save you the most
amount of money. Standard deduction is a flat dollar no questions asked
amount, and that number is $12,200 for single filers. Why this is such a big deal is because before the tax reform this
number was $6,350! Itemized deduction are expenses you have throughout the year that can decrease your taxable income. So add up all those expenses you had throughout the year like medical
expenses, property taxes, student loan interest, and charitable contributions. If
this number is bigger than the standard deduction, or $12,200,
you’re going to want to take the itemized deduction. Now back to our example. Meet Ann. Ann is a young professional with a good job is still filing her taxes as
“single” and loves to give back to her favorite charities. Ann lives in an
apartment it doesn’t pay any money for home mortgage interest or property taxes. She has some student loan interest, who doesn’t?, but it’s not that much. In past
years Ann has donated $7,000 a year to her favorite charity. This is great because she can pick the itemized deduction and get a tax break!
She is over the six thousand three hundred fifty dollar limit for the old
standard deduction. But with the tax reform the new standard deduction is $12,200 which means that Ann doesn’t get a tax break for the money she
donates. Some people may ask, “What’s the point if I donate $5,000 or $7,000? I
still won’t get a tax break!” This is what nonprofits are worried about. The tax
reform has reduced the benefit of giving to charity by more than 30%. If this is
you, don’t let this discourage you to donate. A way that you can contribute to charity and get the tax benefit is by
bunching your donations. For Ann, bunching means that instead of paying $7,000 a year to charity she will pay $7,000 of January of one year and $7,000
in December of that same year. Then the next year she’ll pay nothing for
donations and the year after that she will pay again in January and December. The years that Ann donates in January and December she’ll get to choose itemized
deduction and get that tax break. $7,000 + $7,000 is $14,000 which is
more than that $12,200 standard deduction. If you’re one of the millions
of people who are thinking about cutting back on their donations to charity
because of the tax reform, go back and see if there’s something that you can do
to still make sure you get that tax break and you’re good cause continues to
get your support. Happy season of giving back, and remember, you don’t have to
understand numbers to understand us!

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