For you, the new tax structure may make you wonder how you can still “do good” and reap the tax benefits. Below is a brief rundown of what has changed and how this could affect your next donation.
- Are charitable donations still deductible?
They are, but only if you itemize. You may not be itemizing now because the standard deduction has nearly doubled.
- For those who will itemize, what rules have changed?
First, you are now permitted to make cash contributions of up to 60% of your adjusted gross income (AGI), previously this was 50%.
Second, Pease limitation, which reduced the value of your itemized deductions by 3% of every dollar of your AGI above a certain threshold, is now eliminated.
- Are there ways for those who are taking the standard deduction, to give more efficiently?
If you are close to the threshold for taking the standard deduction, you may be able to get a tax break by using the strategy “bunching.” With this strategy you double up on charitable tax deductions and itemize one year, then minimize these gifts the following year and take the standard deduction and so on. If this is your situation, please consider opening a Donor Advised Fund (DAF) or Gift Account (GA), which allows you to take the immediate tax deduction for the contribution. This will allow you to donate in the current year without having to decide right away which organization(s) should benefit, plus your favorite organization(s) won’t have to feel the pinch.
- Are qualified charitable distributions (QCDs) still permitted?
QCDs were not affected by the new tax law and can still be used to satisfy some or all of your required minimum distributions (RMDs). Gifting directly from your IRA to the CFSC, allows you to avoid paying income tax on the distribution and there is no additional charitable tax deduction. DAFs and GAs are still not permitted to receive RMD gifts.
- Is it still beneficial to donate appreciated securities?
Yes, contributing appreciated securities is still an invaluable way to give, especially in a strong stock market. You can still avoid paying capital gains on the full value of the stock when donating directly to the CFSC. The law still permits gifts of securities up to 30% of your AGI.
Overall, you give because you love your community. The new tax law doesn’t change that, but having options that allow you to continue to give in an effective way is important to you. Because by giving efficiently your favorite charities benefit.
As with all tax decisions, it’s a good idea to meet with your professional advisers to determine the best charitable giving strategy for your situation.