How the New Tax Law Affects Charitable Donations
The Tax Cuts and Jobs Act is making a huge impact on how people structure their finances, and that includes making charitable donations. The new tax law doubled the standard deduction from $6,350 to $12,000 in 2018 for single filers and from $12,700 to $24,000 for married coupled under 65 filing jointly. But at the same time, it eliminated or limited many deductions. It even limited deductions for state taxes and property taxes.
Under the new law, more people will find it more beneficial to choose the standard deduction rather than itemizing. Unfortunately, we can already see that the result of this barrier to itemization is fewer charitable donations. Sure, you can still deduct charitable donations. It’s just that depending on your situation, it may cost you more in taxes if you do. Let’s look at why and what you can do about it.
Charitable Donations Will Decrease Under the New Tax Law
In order to reduce the amount you owe for taxes through charitable donations, you must itemize. Before the new tax law, when you added up all your deductions including charitable donations, it would often amount to more than the standard deduction. This encouraged people to itemize and likewise encouraged charitable giving. A recent Philanthropy Outlook report from Indiana University shows that many people adjust how much they give to charity according to how their taxes are affected.
Under the new tax law, fewer taxpayers are finding it beneficial to itemize.
- Before the new tax law went into effect, 44 million tax payers, that’s 30.1% of households itemized their deductions. 68.5% took the standard deduction.
- It is expected the number of people who itemize will fall dramatically when the 2018 returns start rolling in, which will reduce charitable giving.
- The Tax Policy Center estimates that the number of people that will claim an itemized deduction for charitable donations in 2018 will fall to 16 million from a previous 37 million. (Note the number of people who itemize and the number who itemize charitable donations are not the same.)
- Americans gave $410.02 Billion to Charity in 2017 according to Giving USA. The Council on Foundations estimates that under the new tax rules, charitable giving will decrease by $16 billion to $24 billion
Strategies to Continue Giving Without Paying More Taxes
Bunch Your Donations
For some who donate significantly to charity, itemizing their charitable donations will still give them a bigger tax break than the standard deduction. If you give regularly but not in the amount that will trigger a deduction that is more than the standard deduction, you might want to consider giving every other year in a larger amount. So, one year take the standard deduction but do not give, and the next year give an amount large enough to make itemizing beneficial. Of course, this may or may not make sense according to your tax bracket and your financial circumstances.
Donate Appreciated Stocks or Mutual Funds
Should you be lucky enough to own stocks that have appreciated, and you have owned them for more than a year, you may want to donate the appreciated shares. This way you can get the charitable deduction (assuming you itemize), and you can also avoid tax on the capital gains. If your donated stock is worth over $1,000, this is probably a worthwhile strategy. Speak with your tax advisor.
Donate from an IRA
If you are required to take minimum distributions from your IRA because you are at least 70 and a half years old, you can use the pretax dollars in your IRA to make a charitable donation. Your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. The amount donated will not be included in your adjusted grow income if you make a direct transfer to the charity.