The new tax law is making it a little more difficult to decide how you make your gifts to charity. Here’s why:
The standard deduction has increased from $12,000 to $24,000. So, what does that mean to you? On your tax return you can deduct the larger amount of the standard deduction (12,700 for married couple last year) or the total of your itemized deductions. For example, let’s say last year when you added up all of your charitable giving, taxes, mortgage interest etc. they totaled $7000. In that case you would want to take the standard deduction because it’s larger. In 2018 the standard deduction for married couple is now 24,000. You get to take that deduction even if you don’t have any itemized deductions. In essence this means you may not be getting credit for your charitable contributions.
However, as Capt. Spock (you’ll only understand this if you’re a Star Trek fan) used to say “there are always possibilities.” Here are a few to consider:
- You may want to contribute directly from your IRA. If you’re over 70 ½ (when you’re required to begin taking withdrawals from your IRA) you can contribute from your IRA directly to a charity. You don’t get a deduction but you also are not taxed on the amount withdrawn from the IRA. Another positive is that your contributions to charity from your IRA will count toward your required minimum distributions that begin at 70 ½. Ask your IRA administrator what steps you need to take, because the procedures can vary from firm to firm.
- Another option is charitable stockpiling. Here’s how it works.Instead of giving $10,000 per year over five years to a charity, you would give $50,000 in one year, taking you above the new $24,000 standard deduction and thus providing a tax benefit for your contribution.
- A donor advised fund could also be a viable option. Like stockpiling a large contribution such as $50,000 in the previous example could be given to a donor advised fund. You would get a tax deduction for this $50,000 in the year given. However, you wouldn’t have to choose the charities that you distribute the money to until later on. As long as it’s a 501©(3) qualified charity you’re okay.
This is only one of many aspects of the new tax law. It’s important that you look at your entire tax picture before making any decisions. Consulting with your CPA on this would help you connect the dots and maybe keep more money in your pocket rather than putting it in Uncle Sam’s.