3 Smart Ways to Give to Charity Under New Tax Law
Starting in 2018, the tax deduction that giving to charity provides may be no longer be available to many people. That is, unless they change the way they give. Here are three strategies to help keep the deduction many count on.
The 2017 Tax Cut and Jobs Act makes significant changes to the tax code that will impact many taxpayers. While the tax act’s main beneficiaries are corporations (a single 21% corporate tax rate now applies), individuals may also benefit from lower rates and a higher standard deduction.
Perhaps the single biggest change for individuals is a $10,000 cap on state and local tax (SALT) deductions. Taxpayers in states with high income taxes and high real estate property taxes — like New York, New Jersey and California — will be most affected. The Tax Policy Center estimates this change will reduce the number of taxpayers who itemize from 37 million to about 16 million. Capping the SALT deduction may have a ripple effect for some taxpayers — meaning their previously itemized deductions (including charitable deductions) won’t exceed the new standard deduction.
For taxpayers who have a history of making charitable contributions, making sure those contributions have maximum tax benefit may require some additional planning. Let’s review some strategies that could help minimize your tax bill while also helping to do good.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A Chunky Way to Give to Charity
The first strategy involves “chunking” two years of charitable deductions into one tax year. By making charitable contributions in January and December of the same year (think of the December contribution as paying one month in advance), taxpayers may be able to claim itemized deductions in the year of their charitable gifting and take a standard deduction in the alternate year. This need not change one’s gifting level, merely the timing.
Another Helpful Way to Give: Donor Advised Funds
A slightly different method to take advantage of the “chunking” strategy is to again make multiple-year charitable gifts in one tax year, but this time via a donor advised fund (DAF). Contributors to DAFs receive a tax deduction in the year of contribution, while retaining control over the timing of the distribution to the charity of their choice. To illustrate, John & Mary Smith gift $25,000 of appreciated stock to a donor advised fund with their area community foundation in 2018 and deduct this charitable contribution on their 2018 tax return. John & Mary can make distributions from their DAF to support various charities of their choice, perhaps over the next several years.
Finally, You Can Tap Your IRA
Finally, another strategy only available for taxpayers over age 70½ and involves making a qualified charitable distribution (QCD) directly from one’s IRA. A QCD counts towards one’s required minimum distribution (RMD) but is not included in taxable income on the tax return. This strategy results in the taxpayer getting the benefit of the charitable contribution (through lower income) irrespective of whether they itemize deductions.
As with any tax strategy, one needs to consult a tax professional on whether certain strategies apply to their specific circumstance. The good news is with advance planning you can make the new tax law work to your benefit.
Mike Palmer has over 25 years of experience helping successful people make smart decisions about money. He is a graduate of the University of North Carolina at Chapel Hill and is a CERTIFIED FINANCIAL PLANNER™ professional. Mr. Palmer is a member of several professional organizations, including the National Association of Personal Financial Advisors (NAPFA) and past member of the TIAA-CREF Board of Advisors.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Three Big Ways That Life Insurance Can Be a Lifeline
Life insurance not only provides a safety net for loved ones and leaves behind a lasting legacy, but the cash value can also help during financial hardship.
By Steve Sugumele Published
-
Romance Scams That Target Older Adults Rising: What to Do
Here are some tips to help you avoid falling for a scam, especially when a scammer tries to prey on your affection.
By Patrick M. Simasko, J.D. Published
-
Lessons Learned From Britney Spears’ Financial Conservatorship
The pop star’s recent memoir reveals the toll her involuntary conservatorship took on her and spotlights the drawbacks of these legal arrangements.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Four Things to Know About Managing a Loved One’s Finances
Figuring out when it’s time and knowing how to talk about it are just the start. You also need info about estate plans, insurance and health care decisions.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Three Tax-Smart Strategies for Real Estate Investing
Opportunity zones, Delaware statutory trusts and real estate income funds can help investors maximize gains and mitigate taxes.
By Dwight Kay Published
-
Can Language Apps Teach You to Speak a Foreign Language?
Your expectations might be too high if you think an online language platform can teach you to have a meaningful conversation in a foreign language.
By H. Dennis Beaver, Esq. Published
-
Avoid Surprises: Don’t Procrastinate on Your Taxes
You really should start thinking about next year’s taxes immediately after filing this year’s. Better tax efficiency could save you some serious dough.
By Jared Elson, Investment Adviser Published