The Tax Cuts and Jobs Act of 2017, signed into law on Dec. 22, 2017, increased the standard deduction to $24,000 for married couples filing jointly and $12,000 for single individuals. The deduction for state and local income taxes was also limited to $10,000. As a result, many donors will no longer itemize deductions, so they will not receive an income tax deduction for charitable gifts. This change may be irrelevant to the majority of donors who make charitable gifts for non-income tax reasons. However, there are still ways to receive an income tax benefit for charitable gifts.
First, donors may bunch charitable gifts into one year. Then they can itemize deductions for the year of bunching and take the standard deduction for the years they do not bunch. For example, if a donor typically gifts $10,000 to charities each year, the donor could instead gift $20,000 to charities in one year and make no gifts the following year. If a donor would prefer to have the gifts distributed more evenly to charities over the years, the donor could make the larger gift to a donor advised fund in one year, but have distributions made from the fund to the charities over a period of years.
In addition, under the act, the deduction for gifts of cash has increased from 50 percent to 60 percent of adjusted gross income. Any cash gift over 60 percent of a taxpayer’s adjusted gross income can be carried forward to future tax years, which was not changed by the act.
Finally, certain donors may make charitable gifts directly from their IRAs. Generally individuals must begin taking IRA distributions once they reach age 70 1/2, and such distributions are included in income. Instead, a donor who has reached age 70 1/2 may direct that distributions (up to $100,000 per year) be made directly from the IRA to a public charity (not a donor advised fund or private foundation). The distribution is then excluded from the donor’s income and the donor may still take the standard deduction. This technique is not available for distributions from qualified plans, such as 401(k)’s or 403(b)’s.
It is not totally clear how these changes will impact total charitable dollars, and charities are rightly concerned about this unknown. Knowing the detail behind the headlines is important so you can make the best charitable decisions based on your philanthropic as well as your tax goals. Contact the author, Amy Krier, or see your tax adviser for advice on the best ideas for your situation.