Passed at the end of 2017, the Tax Cuts and Jobs Act (TCJA) will change the way Americans itemize their tax deductions. Nonprofit organizations across the country are wondering if it will also change the amount people give.
The new tax law nearly doubles the standard deduction. It also caps the deductions for state, local, sales and property tax at $10,000. (Those taxes can be significant in a high property tax state like Pennsylvania.) Both of these things are likely to cause more taxpayers to take the standard deduction rather than itemizing.
With less reason to itemize, will people also give less to charity because they will no longer need charitable deductions to increase the amount of their deduction? My guess is that we are unlikely to see a significant reduction in charitable giving. Most charitable donors give to help organizations and causes they care deeply about. They give because they know they are helping to accomplish a larger purpose. The charitable deduction is usually just an extra perk.
What else should you know to make the most of your charitable giving under the new tax law? The TCJA now allows you to deduct 60% of your adjusted gross income (AGI) for cash contributions. (Previous legislation would allow you to deduct 50% of AGI.)
Now is a great time to consider a gift of appreciated stock. The TCJA maintained the deduction for gifts of property and appreciated stock at 30% of AGI. However, a gift of an asset that has risen in value will allow you to avoid tax on charitable gain income. This type of giving is beneficial whether you itemize or take the standard deduction since it reduces your taxable income overall. If you itemize and make a large contribution, you may be able to spread your deduction over a few years.
Donors with multiple charitable interests should investigate establishing a Donor Advised Fund (DAF) with the community foundation. You can give now to establish a DAF. Then, over months or years you can recommend grants from the fund to the charitable organizations you find most worthwhile.
Lastly, if you’re age 70-½ or older you can still make charitable gifts from an individual retirement account (IRA) directly to charity. Gifts can be made to recognized public charities from traditional and Roth IRAs. (Other retirement plans such as 401(k) and 403(b) annuities are not eligible.) As much as $100,000 per year can be given tax-free. The Internal Revenue Service (IRS) treats IRA distributions to charity as non-reportable events. They are not added to taxable income and therefore may not be deducted from income. Most people will fare better from a tax standpoint by using this method of giving.
As always, discuss your charitable giving with your accountant and financial advisor. Or, contact the Crawford Heritage Community Foundation for more ways to make the most of your philanthropy.