Tax Strategies for Charitable Giving Under the New Tax Law

Every Tuesday, I volunteer at PAWS Chicago.  It is a cause that is dear to my heart.  I have always loved animals and have been fortunate enough to be able to support them financially, but wanted to make a difference by also volunteering my time helping the animals at the Lincoln Park Adoption Center in Chicago.  I know that many of you reading this may also have favorite charities that you like to support and may be wondering how the new tax laws will affect the deductibility of your contributions in 2018.

Due to the higher standard deduction ($24,000 for married filing jointly) and the $10,000 cap on state and local tax deductions, less than 10% of taxpayers are expected to be able to itemize their deductions in 2018.  Without itemized deductions, most people will lose the tax benefits associated with charitable giving.

Fortunately, there are some strategies that can be implemented to preserve the deductability of charitable donations.  One option is to lump charitable donations in one year as opposed to spreading them over multiple years.  For example, if you normally give $10,000 a year to charitable causes, instead of making them on an annual basis, you could do a lump sum donation of $30,000 in one year, as opposed to $10,000 for each year over three years.  In this way, you would exceed the standard deduction and would receive the benefit of being able to deduct your contribution. These lumped charitable contributions could be made by using a donor advised fund, offering an immediate deduction for your contribution.  In addition, you would be able to contribute appreciate securities instead of cash, eliminating the potential capital gain tax that you would have paid upon selling the appreciated securities.

Another option available for someone over age 70 ½ is to make a direct transfer of IRA balances of up to $100,000 per year to a charity.  If you have already planned to give a certain amount each year to charity, this would be a tax saving strategy as this would count toward satisfying your RMD.  Since IRA distributions are taxable, you would end up saving since these dollars would never hit your adjusted gross income, thus avoiding paying tax on this distribution.  This is only available to IRA’s, and not 401K plans.

I hope that changes in the new tax law will not dissuade people from continuing to support charitable causes. As you can see, there are different tax strategies that can be implemented to preserve the deductibility of charitable donations.  Please contact me if you would like advice on continuing to support your favorite charitable causes in a tax efficient manner.