There has been a lot of confusion with the new tax laws as to whether you are able to deduct your charitable giving in 2018 and going forward. The Tax Cuts and Jobs Act did not eliminate the tax deduction for charitable gifts, but some of the rules have changed.
The new Federal tax laws have increased the standard deductions ($12,000 for singles and $24,000 for married filing jointly), capped the amount of state taxes you are able to deduct, and eliminated other deductions. This is causing many taxpayers to no longer itemize their deductions. Since charitable contributions are only deductible as itemized deductions, many taxpayers will no longer receive any tax benefit at the federal level, while others may see a reduced tax benefit. Keep in mind that many states still allow for these deductions (including the state of Minnesota), so there may still be some amount of tax savings there.
But all is not lost! While it is more difficult than before to capture tax benefits for charitable giving, SWA is working on several strategies with clients in order to maintain some of the tax benefits.
- Bunching a few years of contributions into a single year to drive your itemized deductions above the standard deduction amount in that year, then reducing contributions in the following year(s) and using the standard deduction in those years.
- One tool that works well with this strategy is a Donor Advised Fund.
- Donating appreciated stock may make sense with a bunching strategy because, as we've seen recently, some days in the market are good for gifting at a high price while others are not.
- If you are age 70.5 or older, consider donating part or all your required minimum distribution (RMD) from an IRA directly to a charity. This can be very effective because it directly reduces the amount of taxable income you report, instead of having to rely on an itemized charitable deduction.
Regardless of your situation, we continue to recommend you keep good records of your donations throughout the year. See the next page for some tips for deducting charitable gifts.
If you would like help reviewing the best strategy for your specific situation, please reach out to your Summit Wealth Advocates' Advisor.
Tips for tracking your Charitable Gifting
- Make sure the organization you are giving to is qualified. There is a tool on the IRS website to search for your organization ( https://apps.irs.gov/app/eos/ ).
- If you receive any financial benefit from your contributions, such as merchandise, tickets to a ball game or other goods and services then you can deduct only the amount that exceeds the fair market value of the benefit received.
- Donations of stocks or other non-cash property are usually valued at their fair market value of the property (generally, the price at which the property would be sold for).
- For all cash, check or other monetary gifts, regardless of the amount, you must maintain a bank record, payroll deduction record, or written communication from the organization containing:
The name of the organization
The date of the contribution
The amount of the contribution
- To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing:
The amount of the donation and a description of any property contributed
Whether the organization provided any goods or services in exchange for the gift.
- If your total deduction for all noncash contributions for the year is over $500, you will need to complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
- Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
Note: Always seek the advice of a tax professional to confirm how a charitable gifting strategy will impact your personal taxes.