Year-End Tax Planning for Charitable Contributions Whether You Itemize Your Deductions or Not

The Tax Cuts and Jobs Act of 2017 will have a significant effect on the deductibility of charitable contributions starting in 2018. While the Act reduced the tax advantages of making charitable contributions for some taxpayers, it provides additional incentives for others.

To start, the Act almost doubled the standard deduction to $12,000 for single taxpayers and $24,000 for couples filing jointly. It is estimated that the number of Americans itemizing their deductions in 2018 will be about 20 million – down from the approximately 45 million who have been itemizing in recent years. Those who make the largest contributions to charity will likely still itemize and will be able to derive a tax benefit from their charitable contribution deduction. However, those whose total deductions will be less than the standard deduction will not be able to benefit from the deduction of their charitable contributions.

Planning tip #1 – If you want to itemize deductions for 2018, consider increasing your planned charitable giving this year and skipping your usual giving in future years. This bunching of your charitable deductions may enable you to itemize your deductions and should result in tax savings.  In the years you skip your charitable contributions you can take advantage of the standard deduction. If you make your charitable contribution to a donor-advised fund, you can deduct your charitable contribution currently and then choose to make grants from your donor-advised fund over time. These popular funds provide a convenient and flexible method to be personally involved in your charitable giving and a donor-advised fund can be opened through the Parasol Tahoe Community Foundation. 

Planning tip #2 – The Act didn’t change the rules for qualified charitable distributions from IRAs, which permit those older than 70 1/2 to transfer up to $100,000 from their IRAs to charity each year and have the distribution fulfill their Required Minimum Distribution (RMD) without the distribution having to be included in adjusted gross income. This is the equivalent of deducting your charitable contribution without itemizing your deduction, so you can still take full advantage of the new higher standard deduction.

The Act also increased the 50% of adjusted gross income (AGI) limitation on the current deductibility of charitable deductions of cash to 60%. While primarily taxpayers who make the largest contributions were limited by the 50% limit, the raising of the limit to 60% could be advantageous when planning for bunching of contributions.

To close, remember that you can maximize the tax benefit and efficiency of your charitable contributions by making your charitable contributions using highly appreciated securities held more than one year.  Your charitable contribution is measured by the appreciated fair market value of the security contributed and you avoid having to recognize the gain on the appreciation.

To arrange a personal meeting to discuss how the Parasol Tahoe Community Foundation can help with your charitable giving, please contact Claudia Andersen, CEO, at 775-298-0187.

This brief summary of certain federal income tax laws is provided by George Ashley of Ashley Quinn, CPAs and Consultants, Ltd., (AshleyQuinnCPAs.com) for informational purposes only. Please consult your tax advisor to determine the potential federal and state tax benefits from making a charitable contribution.