Charitable Contributions Under the New Tax Law

CHARITABLE CONTRIBUTIONS AND THE NEW TAX LAW

 

Charitable contributions are still deductible as one of your itemized deductions. What has changed is the “standard deduction”.  In most cases, the standard deduction will be a larger number than your total itemized deductions.  The itemized deductions most are familiar with are medical expenses, real estate taxes, personal property taxes, state taxes, mortgage interest, and charitable contributions.

 

When you prepare your 2018 taxes, you will have the choice of subtracting a standard deduction from your gross income, or an itemized deduction.  It would make sense to subtract the bigger of the two numbers. 

For example:  a married couple have mortgage interest of $6,000 and charitable contributions of $6,500, for a total of $12,500 in itemized deductions.  They have gross income of $40,000.  They can choose to subtract $12,500 from their taxable income or, the new standard deduction for married couples under age 65, $24,000.   

Gross

$40,000

$40,000

Itemized Deductions

$12,500

 

Standard Deductions

 

$24,000

Taxable income

$27,500

$16,000

 

According to research, about two-thirds of all Americans contribute to charity, and at least half of them do so without itemizing their deductions. I believe people give from the heart.  Most people aren’t calculating how much taxes they will save with each charitable contribution.

 The new tax law is all a matter of perspective.  One way to think of the new standard deduction for the couple in our example – they only gave away 16% of their income, but the IRS is leaving them with 41% less taxable income. And, with the taxes this couple will save, they will have MORE to give the next year!

Of course, the couple in our example could always give more to increase their total itemized deductions above $24,000. There are a few other techniques to maximize charitable contributions for tax purposes.

One technique that has become permanent in the tax code is to allow Required Minimum Distributions from an IRA to be designated to charity.  These are called Qualified Charitable Distributions (QCD). Making a QCD will allow you to reduce your IRA distribution dollar-for-dollar by the amount you’ve sent to a charity.  This is one way to receive a 100% deduction for your charitable contribution.

 -Debra

05/22/2018