How to Give on Thanksgiving ... Without Giving Up Your Deductions
As the year winds down, it's time to think of others. You've probably heard that the new tax law has changed how people are giving to charity, but now's when you can put one of two tax-saving plans into action.
While the Tax Cuts and Jobs Act of 2017 simplifies tax filing for millions of Americans by eliminating several deductions in favor of a higher standard deduction, the higher deductions mean that many charitable contributions will no longer have a positive impact an individual’s tax return.
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Note that the IRS has a limit on how much individuals can deduct for charitable gifts in a given year. Appreciated stock gifts to a DAF are capped at 30% of AGI. While there are some rules that allow excessive gift amounts to be carried forward on an individual’s return – it applies only to those who continue to itemize deductions each year. Careful planning is required for individuals making charitable gifts larger than 30% of expected AGI.
Giving for Retirees
For individuals over age 70½, consider donating your required minimum distribution from an IRA to charity. Individuals 70½ or older can gift up to $100,000 to charity tax-free each year using the qualified charitable distribution (QCD). The gift satisfies the IRS distribution requirement and means that the distribution is not taxable income for the individual. Note that the money must move directly from the IRA to the charity for it to count as a tax-free transfer. All donations must be made to a public charity.
Importantly, there is no need to itemize deductions to receive a tax benefit from the IRA gift. The tax-free transfer also lowers AGI, which may help to avoid the Medicare high-income surcharge and may also lower taxes paid on Social Security.
SEE ALSO: What Type of Giver Are You? To Do the Most Good, Find Your Giving Personality
What to Give
Maximizing Your Giving
Giving is an important part of the holiday season, especially for those with the means to help others, but the new tax laws might influence the ways you choose to give. While the new deduction structure may offset the personal tax impact of your charitable donations, with the right strategies you can make sure you are rewarded for those donations within the tax code. Some of these strategies include the use of “gift bunching” and/or gifting directly from IRAs. However you decide to give, you should always consult your adviser to ensure you utilize the tax code and your investments to your advantage.
Who should be mindful of these strategies?
Charitably inclined individuals who have a small or no mortgage.
Medicare participants who have modified adjusted gross incomes (MAGI) close to any of the Medicare premium surcharge thresholds.
Anyone whose itemized deductions typically hover around $24,000.
See Also: 5 Ways to Maximize Your Charitable Giving
Disclaimer
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
John Bratschi is CEO of Prio Wealth, a $2.7 billion registered investment advisory firm in Boston that helps clients prioritize their financial and life goals. With over 33 years' experience in the financial services industry, John works to integrate each client's individual priorities with their plans and portfolios and gives them a framework to make better choices every day.
