The New Tax Law And Charitable Giving Strategies for Year-End
This story first appeared in the Winter 2018 REPORT Newsletter
Changes in allowable itemized deductions and an increase in the standard deduction in the new federal tax law mean taxpayers may not be able to claim as many tax deductions for charitable gifts in 2018 as they did in previous years. In addition, some taxpayers may find the after-tax cost of their charitable gifts could increase due to lower marginal income tax rates, even if they itemize.
Suggested strategies on year-end charitable giving:
Be More Generous
This is a year to “be more generous.” While there may be fewer incentives in the tax code, the charitable needs in our communities and the needs of the nonprofits serving those needs have not decreased. Nonprofits rely heavily on support from taxpayers. Consider giving as much — or more — than you did in the past, even if you can’t deduct or if you end up with a decreased deduction. Consider sharing any additional income you have due to lower tax rates with those less fortunate. In effect, “be more generous.”
Use the IRA Rollover
Those over the age of 70.5 years old can make distributions of up to $100,000 from their IRA to public charities under a special provision of the tax code. Benefits include: (1) not having to report that distribution as taxable income; (2) having the distribution to charity count as part of your annual required distribution from your IRA; and (3) continuing to support charities you care about. While you can’t claim an income tax deduction for the distribution, you don’t have to include this income as taxable. This is a win for you and a win for the causes you care about. Note: an IRA rollover can support any public charity but cannot be used to support a private foundation or donor advised fund, or fund a planned gift.
“Bunch” Your Charitable Gifts
If the amount that you give annually to charity is not enough to itemize with the new tax law, or provides you only a marginal deduction, think about making two or more years of charitable gifts in one year so the total allows you to itemize your deductions. You may do that by making the equivalent of multiple year gifts to one or more charities — or you can make your gift to a Community Foundation donor advised fund and then recommend grants from that fund to the causes you care about over the coming years. Using a donor advised fund allows you to claim a deduction this year while recommending grants that result in a steady stream of annual support to those charities in the future.
Plan Now for April 15
Consider the new tax law before the end of the year, as you will want to take into consideration these changes before the tax year is over. Consult with your tax and financial advisor to find out the best way you can continue to support your favorite charities.
For more information, please contact a member of Philanthropic Services at the Community Foundation at 313.961.6675. We are here to help.