While a significant number of taxpayers are no longer able to itemize under the new tax code, Americans are tapping creative ways to maximize benefits and make the most of the new laws.
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For example, for those who donate to charity each year, but can no longer claim the deduction, there is still a way you can get credit for your goodwill.
Taxpayers can set up what is known as a donor-advised fund to receive an automatic, immediate deduction. The fund allows people to set aside as many years’ worth of giving at one time as they’d like – in what is akin to a charitable investment account. Once the money is irrevocably put into the fund, it can be allocated at the taxpayers’ leisure over time to the charities of their choice, with the stipulation that it is put toward an IRS-qualified public charity.
“Donor-advised funds [are] a big thing people are using to maximize their position,” Elijah Kovar, co-founder of Great Waters Financial, told FOX Business, adding that they are “skyrocketing in popularity” in the wake of tax reform.
Kovar said he is setting up about one donor-advised fund per week for his clients. It is useful for individuals or couples who normally donate to charity, but won’t get the deduction under the new laws. If a couple is going to give $4,000 per year to charity, they can put eight years’ worth of giving into the fund, which allows them to write off $32,000 immediately, Kovar said.
A donor-advised fund is not only free to set up, the money also grows tax free. Taxpayers can generally put assets ranging from real estate to private business interests to bitcoin into the fund. If they put in long-term appreciated assets, they can also avoid capital gains taxes, Kovar noted.