By Christopher Rinkewich
Upon reviewing the 2018 tax laws, you’ll notice significant changes that were made in the Tax Cuts and Jobs Act. Due to various changes in the law, some taxpayers may be discouraged from making charitable donations going forward.
Why, you may ask?
The new tax law has nearly doubled the standard deduction, limited the deduction for state and local income and property taxes to $10,000, and eliminated the two percent miscellaneous itemized deductions.
What does this mean?
This means most taxpayers will find it more beneficial to claim the standard deduction rather than itemizing, and you must itemize in order to deduct any charitable donations that have been made.
Are you still looking to make charitable donations?
If so, here are three tax strategies to help you along the way:
- Bundle your donations. One way to get around the nearly doubled standard deduction is to make one large charitable donation every two or three years instead of making smaller donations each and every year.
- Make a Qualified Charitable Distribution (QCD). If you’re aged 70.5 years or older, consider making a QCD directly from your IRA account instead of taking your Required Minimum Distribution (RMD) from your account each year. By doing this, you can reduce the taxable amount of your RMD by the amount of charitable donation that’s made in that same year. Although you’ll be unable to claim the charitable donation on your return, this is a great way to reduce your taxable income and still be charitable.
- Consider donating stock. If you own stock that’s appreciated over the years, consider donating those shares instead of writing a check or giving cash. There are two potential tax benefits here: (1) you could get a charitable deduction based on fair market value that can be reported on your return, and (2) you avoid paying any capital gains tax on the stock if you’d sold it instead and then donated the cash. Please be sure to donate property that’s considered long-term (stock that’s held for more than one year), as the deduction for long-term stock is equal to the fair market value at the time the stock is donated. For short-term capital gain property, the overall charitable deduction is limited to the original cost basis of the stock, so the benefit of appreciation is lost during the donation. As you can see, it’s generally advisable to delay the donation of property until the stock has been held for longer than one year in order to get the maximum tax benefit.
I hope you find these charitable donation tax strategies helpful!