Charitable Giving; What Now Post the 2017 Tax Cuts and Jobs Act

One of the most common set of questions I have gotten starting in the 2018 tax year is “I’ve heard you can no longer deduct charitable contributions. Is that true? Is it worth it for me to still make them?”.

As it often is with tax matters, the answer is, it depends. It depends on your own individual tax situation, whether you are married or not, how much you generally donate a year, how old you are, and so many other factors.

The Basics Under the 2017 Tax Cuts and Jobs Act

Much of the reason for the confusion is the 2017 Tax Cuts and Jobs Act (the “Act”) for the tax years 2018-2025 increased the standard deduction to $12,000 for individuals and $24,000 for persons filing married filing jointly (2018 figures). It lowered the allowed itemized deduction for all taxes to a maximum of $10,000 and eliminated the deductions for expenses subject to 2% of adjusted gross income (which might have included unreimbursed employee expenses and investment advisory fees).

The result of all these changes is many taxpayers combined itemized deductions including any donations to charity are not greater than the new standard deduction in any giving year. So, from a tax perspective, it may not make sense to make charitable donations.

Prior to the Act, one could only deduct a maximum of 50% of their adjusted gross income for donations to public charities. The Act raised this threshold to 60% of adjusted gross income. The Act also repealed the charitable deduction allowed for payments made to college institutions for the right to purchase tickets or seats at athletic events.

A couple basic options for charitable tax giving

  • The most common option would be to use bunching. With bunching, you would purposely donate to all your wanted charities in one year and none in the next year and use this method going forward. While perhaps not the most favored option by charities, using this method might get your total itemized deductions over the standard deduction in the year you “double up” your donations.
  • A great opportunity if you are over 70 ½ and required to receive taxable distributions from your IRA is to have distributions, including your required minimum distributions, up to $100,000 a year per person made directly to your chosen charity. While using this method would not allow you a charitable deduction for those monies, you also do not have to include those distributions made directly from your IRA to the charity in your taxable income for that year.

Other, more complex options including the use of trusts

Some other possibilities for larger or specific driven charitable giving would be to use private foundations, donor advised funds, or charitable trusts. The two types of charitable trusts are the charitable lead trust and the charitable remainder trust. These types of arrangements need professional tax and legal advisors as they must meet specific requirements to be allowed and realize their full benefits.

If you have any questions or concerns regarding tax planning including related to charitable giving, please contact a member of our tax team and we would be glad to provide further information and assistance.

About the Author: Diana B. Mitchell is a Senior Manager in Maner Costerisan’s tax department. She provides tax compliance, planning, and advisory services for both individual and business clients with a specialty in services for trusts and estates. See her full bio at https://manercpa.com/our-team/diana-b-mitchell-cpa/