Passed in the last weeks of 2017, the new law has wide implications, particularly as it pertains to charitable giving going forward.
So, just what are the most significant changes and how might they influence the way you think about philanthropy?
Here are some takeaways:
- The Tax Cuts and Jobs Act increases the standard deduction from $6,500 to $12,000 for individual taxpayers and from $13,000 to $24,000 for those filing jointly.
- Also, it places a ceiling of $10,000 on deductions for state and local income, sales, and property taxes, a significant limitation in states with higher real estate taxes and for people with higher real estate assessments.
- Cash contributions are now allowed up to 60% of Adjusted Gross Income (up from 50%).
Moving forward, many taxpayers may choose not to itemize their deductions, but rather to take the increased standard deduction. The Tax Policy Center estimates that the number of taxpayers itemizing their deductions may decline from 37 million to 16 million in 2018. As you plan for 2018 and beyond, here are some options to consider.
Donor Advised Funds and Bundling
Donors may benefit by grouping several years of giving into one year and making a contribution to a Donor Advised Fund (DAF). This allows you to itemize in this year, while taking the standard deduction in subsequent years. The DAF gives donors flexibility to make grants to the nonprofits of their choosing over time. In essence, they frontload their charitable giving, take advantage of the charitable deduction, and provide their favorite nonprofit organizations with consistent annual gifts through their donor advised fund.
Gifting appreciated securities remains one of the most effective vehicles for charitable giving. Receiving the fair market value of the stock and avoiding capital gains taxes is just another way to save despite the cap on state and local taxes.
Charitable Giving and IRAs
For donors 70 ½ or older, they can gift all or a portion of their Required Minimum Distribution (RMD) directly to a charity (though not to a Donor Advised Fund) up to $100,000, thus limiting their amount of taxable income. For those taking the standard deduction, this can be a great way to find additional tax savings. Donors have worked with the Community Foundation to take advantage of this type of gift when establishing a designated, field of interest or unrestricted fund to support our community.
As always, we encourage donors to contact their tax advisor for more details about how the tax law affects their personal situation. To find out more about how the Community Foundation can help guide your philanthropy, please contact Amy Singleton at email@example.com or 804-409-5613.