The Tax Reform Act passed in December 2017 radically changed the rules for itemized deductions. This has affected charitable giving in a significant way.
First, the act restricted state and local tax deductions to $10,000 total. Second, it increased the standard deduction for a single person to $12,000 and for a married couple to $24,000.If you have a standard deduction of $24,000 but your state and local taxes are limited to $10,000 you will need an additional $14,000 in deductions in order to itemize. The result is that significantly fewer people are itemizing deductions.
This change, plus the imposition of tariffs, has reduced charitable giving measurably. Unfortunately, charitable organizations still have an important mission to fill. Your donations are still important. In this article we will discuss some ways other than straight cash by which you can give to your favorite organizations.
First, if you are over 70 1/2, consider directing your IRA custodian to distribute your required minimum distribution directly to your charity of choice. You can direct a distribution of up to $100,000. You report no income, you receive no deduction, but the distribution satisfies your required minimum distribution. This can save significant income tax because the amount never shows up on your tax return.
Second, if you have owned appreciated securities for more than one year, you can give some of those securities to your favorite charity and receive a tax deduction for the full fair market value of that security. You would pay no capital gains tax on that gift. You can likely give a larger amount by giving stock and thereby get a larger charitable deduction.
Finally, if you want to get a charitable deduction but are unsure of what charities you wish to give to, consider setting up a donor advised fund at Schwab, Fidelity, or Vanguard. You would get a deduction for whatever amount you put in and then you can, at a future time, request the sponsoring organization to distribute to a charity of your choice. You need to know that once you give the money to the donor advised fund you no longer own it, but you can set it up so that you are the advisor. In this way you can get a larger deduction this year and then distribute over future years.
These are some giving methods that often give a better benefit after tax reform. If you have questions about any of these methods, please give us a call.