Five FAST Facts About Charitable Giving & Tax Reform

Speculation abounded at the end of 2017 about whether politicians would minimize charitable deduction incentives in reforming tax legislation. When the Tax Cuts and Jobs Act was signed into law on December 22 however, charitable giving incentives were still in place and some increased. Here are five ways the new tax law and current economic climate reward charitable giving.

Charitable income tax deduction expanded

The charitable income tax deduction was expanded by the 2018 Tax Cuts and Jobs Act. Out of the three most valuable deductions to individuals, the charitable deduction was raised while the other two, state and local tax deductions and mortgage interest were diminished. For those who itemize deductions in 2018, the amount of charitable contributions that can be deducted each year increased from 50 percent to 60 percent of adjusted gross income.

increased discretionary income

The 2018 Tax Cuts and Jobs Act causes the standard deduction to double to $12,000 for single filers and $24,000 for married couples filing jointly. These increases mean many who previously itemized deductions will have to take the standard deduction. While those taking the standard deduction won’t be able to deduct charitable contributions like before, they will be spared some receipt paperwork. The standard deduction may also provide the additional discretionary income they can use to support the charities of their choice.    

avoiding capital gains tax on gifts of non-cash assets

With the strong overall performance of investment markets, it may be particularly worthwhile for many individuals to make gifts of securities or other non-cash assets. Regardless of whether they take the standard deduction or itemize, individuals can still avoid capital gains taxes when donating these. The IRS considers non-cash assets anything of value that can be sold and converted into cash such as stocks and mutual funds, real estate or jewelry. A capital gains tax is levied on the amount earned above the original purchase price when the asset is sold. Donors of the assets not only avoid having to pay this, but if they are itemizing, they can also deduct the full fair market value of the asset up to 30 percent of their adjusted gross income each year.   
 

advantages of making an ira charitable rollover

Donors 70 ½ and older can distribute up to $100,000 per year from their individual retirement account directly to charity. The gift would then be excluded from gross income and therefore not taxed, regardless of whether the donor itemized or not. The gift would also count toward the donor’s yearly required minimum distribution.

planned gifts still give tax benefits

The 2018 Tax Cuts and Jobs Act did not touch several planned gift options that remain beneficial for the donor as well as the charity.  Individuals and their heirs can still benefit from tax savings by giving charitable remainder trusts, charitable lead trusts, gift annuities and other split interest gifts.  Donors might also wish to generate current tax benefits for gifts placed in donor advised funds, whereby the funds can be transferred to benefit a charity at the time of the donor’s choosing.