Charitable giving under the new tax law

The 2018 Tax Cuts and Jobs Act changed the tax world dramatically.  It gave us the Qualified Business Income deduction, increased the child tax credit, lowered the corporate tax rate that C Corporations pay, and far too many changes to list here.  The new tax law nearly doubled the standard deduction and this in turn means that more taxpayers are taking the standard deduction and fewer are itemizing their tax deductions.  If you take the standard deduction how much you give to charity no longer effects your personal income tax return.  There are certain strategies that can be implemented that will help some tax payers retain the ability to write off charitable donations.

One way that is available to everyone is the concept of ‘bunching.’  This is where instead of giving a smaller amount in years 1 and 2, instead you contribute both year 1 and 2’s amount in the same year.  You would still be contributing the same amount, however, donating it all in one year may cause your itemized deductions to be greater than the standard deduction in the year that you ‘bunch’ your itemized deductions.  Knowing where you stand with other itemized deductions; such as real estate taxes and deductible mortgage interest, will help you judge if it is worth it to ‘bunch’ your deductions or not.

There is another option available for those 70½ or older with traditional taxable IRAs. Instead of receiving the IRA distribution personally, you can elect to have your IRA custodian transfer money directly to a qualified charity.  This is called a qualified charitable distribution (QCD).  The rules for a QCD are very specific so talking with your IRA custodian is important to make sure it is handled correctly.  The benefit of doing a QCD over donating the money yourself is the QCD is not an itemized deduction and is deducted on the face of the return.  A QCD can also satisfy the required minimum distribution for the year it is done.

If you have questions about this or anything else please give us a call at 260-407-5000.

Mike Sylvester, CPA/ABV, MBA


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