How does the new 2018 Tax Cuts and Jobs Act impact you and your charitable giving?

The Congressional Joint Committee of Taxation estimates that the Tax Jobs and Cuts Act will reduce the number of Americans who itemize deductions from 33% to just 5%.

GuideStar has estimated the resulting reduction in annual giving could be as high as $20 BILLION1.

Debt-free retirees are especially likely to see their ability to itemize vanish. The new law increases standard deductions to $13,600 for unmarried taxpayers and $26,600 for married taxpayers, caps state and local tax deductions at $10,000, and virtually eliminates miscellaneous deductions.
While the focus of charitable giving is generally the desire to support personal passions, and not necessarily the financial incentive, there are still options left for retirees to give and get a tax benefit.

Here are a couple of strategies to consider:

Option 1 – RMD to QCD

Taxpayers over age 70 ½ are required to take annual distributions, known as a Required Minimum Distribution (RMD) from their qualified retirement accounts. Individual Retirement Accounts (IRAs) allow for these distributions to be directed to charitable organizations through a Qualified Charitable Contribution (QCD).

Any portion of an RMD that a taxpayer directs to a charity through a QCD avoids being counted as taxable income – up to $100,000 per year – effectively reducing their Adjusted Gross Income.

Option 2 – Donation Bunching Through a Donor Advised Fund

Setting up a Donor Advised Fund (DAF) can help taxpayers “bunch” their charitable donations. A DAF is structured as a 501(c) organization – a non-profit organization under federal law – that enables organizations, families and individuals to manage their charitable donations over time.

When you deposit a contribution into a DAF, the contribution is considered a charitable donation and is eligible for an immediate tax deduction. Deposits can be in the form of appreciated securities or cash. Once the assets are in the DAF, the funds can be invested for tax-free growth and you can write grants from the funds to qualified charities over time.

This allows retirees to maintain their annual giving levels through the grant-making process while taking advantage of itemizing by making a large contribution to the DAF.

1 Source: trust.guidestar.org.

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