Giving: Smith Case Study

Charitable Giving from Current Income

John and Melissa Smith are longtime residents of their mid-sized Texas city. They both attended the nearby university and expect to raise their two children there as well.

John has always had an entrepreneurial spirit. After he graduated, he started a roofing company, leveraging his part-time work throughout high school and college into a business opportunity.
Melissa fell into real estate. She discovered it allows her to balance her role as a mother and her talent for working with other busy people. She enjoys helping them find the best home available in their price range.

While both have been successful in their careers, they remained modest in their spending. So, their combined $300,000 per year income allows them to comfortably give to local charities and their church. While they intend to give regardless of any tax benefits, the charitable deduction has helped them give more than they could have otherwise.

The 2018 tax law changes presented a challenge to the couple when they learned about the cap on itemized deductions of $10,000 for property taxes. This was an issue for them because Texas has relatively high property taxes to help make up for its lack of income taxes.

John and Melissa are grateful to be able to give 10% of their salary ($30,000) per year to their church and to a few other charities close to their hearts. Under the new tax law, giving at this rate each year is not as advantageous as it was previously.

Like most people, John and Melissa would give regardless of the tax benefits. However, by working with Briaud Financial Advisors, they learned if they are able to defer payment one year and give $60,000 in the subsequent year they would actually reduce their tax bill by a total of $4,370 over the course of two years ($2,185 per year). That’s a good start toward a well-earned family vacation!

This technique, further detailed below for spreadsheet enthusiasts, is known as bunching deductions, and it’s one of the many strategies we use at Briaud to help our clients give and save money at the same time. Please feel free to contact us to see how we might be able to help you.

Spreadsheet showing tax advantages of bunching charitable donations.

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