With the passage of the 2017 Tax Cuts and Jobs Act, there has been much discussion regarding the decreased tax rates and eliminations or limits on certain deductions. But how does the new tax law affect the deductions for charitable contributions? On the one hand, the limit on cash contributions has been increased from 50% to 60% of Adjusted Gross Income (AGI). On the other hand, the increased standard deduction to $12,000 for singles and $24,000 for married filing joint, may mean that the standard deduction is more than itemized deductions. Therefore, one may not get the added tax benefit of the charitable contribution. Congress giveth and Congress taketh away…. What are some strategies to attain a charitable contribution deduction if you don’t normally itemize?
Consider the strategy of bunching. If your regular charitable giving doesn’t quite exceed the standard deduction threshold in a partic ular year, you may want to consider making your regular yearend giving on January 1 of the subsequent year, and then again by December 31 of that same year, so that two years’ worth of contributions are in the same tax year, so as to exceed the standard deduction.
Consider making a Qualified Charitable Distribution (QCD). If you’re over 70½ and taking required minimum distributions (RMDs) from a traditional IRA, consider transferring that money directly to a qualifying charity. You won’t get a tax deduction per se, but this qualified charitable distribution is not included in taxable income. You will report the total distribution on your tax return, but enter -0- for the taxable amount, with the notation QCD. This can allow you to meet your RMD, as well as get a tax benefit for a charitable contribution.
To make sure that the charitable contribution is deductible always make sure of the following:
- Keep a copy of the yearend donor letter that the charity sends you. If you make the payment online, keep a copy of the official receipt after you charge your credit card or PayPal account.
- The charity is a 501©(3) organization, and make sure that there is a statement to the effect of no goods or services were received for the donation. Most 501©(3) organizations will have this on their website, most likely on the “Donate” page.
- Remember to save the receipts for any donations made at the grocery or pet store that you add on to your regular purchase.
- Some of your friends may be soliciting donations through social media, such as Facebook, for their favorite charity in lieu of birthday gifts or in memory of a loved one. Again, make sure it’s a legitimate charitable organization and keep your receipt. Check out websites like Charity Navigator to ensure that this is an organization that you support, and that most of your dollars are going to the purpose you believe in. A good rule of thumb is no more than 10% of the funds should be used for each of fundraising and administration purposes; i.e., at least 80% should go directly to the cause.
- Also remember, donations to political organizations are NOT deductible.
As always, if you have any questions regarding how the new tax law and charitable contributions affect you, please contact us, and we can assist you.
Photo by Michael Longmire on Unsplash
