The New Tax Law and Charitable Giving
In this month’s Waccamaw Wisdom, Karen Minogue provides advice about how to give under new tax reform, and how this law will affect charitable giving in years to come. Suggestions for future topics are always welcome at [email protected].
Giving Under the New Tax Reform
Tax Cuts and Jobs Act of 2017
When the Tax Cuts and Jobs Act (TCJA) became law in the final weeks of 2017, many Americans were scrambling for advice on how the new legislation will affect what we pay—and what we can deduct—on our federal income taxes going forward.
Fortunately, in the past month or so, a clearer picture has emerged, and it is one that may be cause for concern for nonprofits around the country. But there are some silver linings.
The major change in the new tax law increases the standard deduction from $6,350 to $12,000 for individual tax payers, and from $12,700 to $24,000 for joint filers. Additionally, the deduction for state and local income, sales, and property taxes is now capped at $10,000.
These changes impact many tax payers who will no longer be able to itemize their deductions, favoring the standard deduction instead. With less incentive to itemize comes the likelihood that charities may experience a drop-off in the number of charitable donations.
But we in the nonprofit sector know that donors are motivated to give for reasons far more compelling than a tax deduction, and trust they will continue giving to the causes and charities they care about regardless of this new law.
With those things in mind, below, you’ll find advice that may help you continue to give generously and maximize what you can give under the TCJA.
The Good News
First, the new tax law eliminates the Pease limitation which previously curbed charitable deductions by tax filers with adjusted gross incomes (AGI) over a certain threshold ($313,800 for joint filers in 2017).
Second, the new tax law enhances the deduction for charitable contributions (of cash, not stock) by raising the limit that can be contributed in any one year. The limit is now 60% of your adjusted gross income (AGI), up from 50%.
However, the limit on contributions of appreciated stocks or property remains at 30% of AGI—which brings us to the following strategies for your consideration in 2018 and beyond:
Donate appreciated stock. The capital gains tax remains unchanged so gifts of appreciated stock are an advantageous way to make a charitable donation. This is a great gift because you can typically give more to the charity than if you sell the stock on your own, pay income tax on the gain, and then donate the cash. You can establish or add to a Donor Advised, Scholarship, Designated, Field of Interest Fund, Unrestricted, or Organization Endowment Fund administered by Waccamaw Community Foundation. This is a great strategy whether you’re itemizing or taking the standard deduction, since it will reduce your overall taxable income.
Consider starting a Donor Advised Fund in 2018 or adding to an existing Donor Advised Fund. You have a wonderful opportunity to establish an endowed Donor Advised Fund with a minimum gift of $10,000. If you already have established a Donor Advised Fund, you may want to consider making a larger than normal contribution to your Fund in one year that exceeds the standard-deduction limits in 2018 ($12,000 for individuals and $24, 000 for couples, under the new law). The tax deduction applies in the year you make your donation to your Fund.
Consider bunching or bundling your charitable giving through a Donor Advised Fund. Making a large contribution to a Donor Advised Fund can allow you to exceed the standard deduction in one year, then spread out distributions from your Donor Advised Fund to charities over the coming years. This is especially helpful if your income may also be bunched, e.g. if you earn more than what’s typical or more than anticipated next year; you will maximize your itemized tax deductions and still be able to support your favorite causes as you would have under the previous tax law.
Please note: For individuals with a Donor Advised Fund who are 70 1/2 years of age or older and must take a required minimum distribution, you may take the distribution (or a portion of it) and make a donation to a Donor Advised Fund. Naturally, if doing so, you will pay the usual tax on the distribution and write a personal check to WCF/Name of your Donor Advised Fund. This still gives you the opportunity to claim the donation as an IRS-qualified charitable contribution on your income taxes because you will have already paid the ordinary income tax on the distribution. In addition, most of these tax law changes are only in effect through 2025.
We hope this advice will help you continue to help you give generously and maximize what you can give under under the Tax Cuts and Jobs Act of 2017.
This blog does not provide legal advice. Consult your tax advisor for more info about how this law affects your particular circumstances.
Give us a call if you would like to learn more about the many different ways you can create a custom gift and leave a legacy. We make it easy to achieve your life planning and charitable goals. Reach Karen Minogue at 843-357-4483 or email her at [email protected].