The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated (or limited) many items that previously could be claimed as itemized deductions. However, it did not eliminate the ability to claim charitable contributions as an itemized deduction.
Importantly though, the TCJA did raise the standard deduction to $24,000 for married couples and $12,000 for single filers up from $12,700 and $6,350 respectively in 2017. So, if you are married and your itemized deductions (which include your charitable gifting) do not exceed $24,000, then you are better off taking the standard deduction of $24,000.
Considering this, and to maximize your tax deduction, consider “bunching” your charitable gifting in different years. That way, your gifting will have a bigger contribution towards your yearly, itemized deductions and may (along with your other itemized deductions) exceed the $24,000 standard deduction.
In a few regards, the TCJA actually made charitable giving more tax effective:
- The ceiling for charitable contributions of cash increased from 50% to 60% of a taxpayer’s adjusted gross income. Importantly, cash contributions exceeding this limit can be carried forward for five years. Note: contributions of securities are limited to 30% of a taxpayer’s adjusted gross income;
- The Pease Deduction Limitation was repealed. The Pease Deduction Limitation dramatically reduced the value of a charitable deduction for those taxpayer’s with high incomes. The TCJA eliminated the Pease Deduction Limitation, so high income taxpayers will now be able to claim a much higher deduction amount on their tax return; and
- A quirk of the TCJA involves a smallish sector of the taxpayer population whose income is between $400,000 and $416,700 for married couples and between $200,000 and $416,700 for individuals. For these taxpayers, their income tax rate actually rises from 33% in 2017 to 35% in 2018. Because of this increase, the value of a charitable contribution to their bottom line actually increases by the 2% difference in the increased tax.
The TCJA also left a few nice gifting options in place:
- Qualified Charitable Distributions from your IRA can still be made (up to $100,000) and still qualify towards a taxpayer’s Required Mandatory Distribution;
- Donating appreciated stocks, bonds and other assets instead of cash still avoids all capital gains taxes regardless of whether or not a donor itemizes; and
- Donor Advised Funds were left untouched, thus maintaining a taxpayer’s ability to utilize that vehicle instead of making direct contributions to charities.
As with all tax matters, be sure to consult your individual tax professional to see how the above items will affect your particular situation.
Additional articles from this issue:
2018 Second Quarter Review and Commentary
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