The new Tax Cuts and Jobs Act of 2017 (TCJA) changes the way most taxpayers will be able to deduct donations. Whether giving results in more or fewer tax benefits depends on highly individualized factors. The bottom line, however, is that seemingly huge new tax breaks may not pan out for even generous givers if they don’t rethink their tax strategies.
Most of the tax rules around charitable deductions haven’t changed, and some rules have changed for the better (including the cash contribution limit for deductions that has increased to 60% of adjusted gross income). However, it’s now more difficult to reach the threshold for eligibility. That’s because the standard deduction is now doubled to $24,000 for married couples filing jointly ($12,000 for single filers). At the same time, there’s a new $10,000 limit on deductions for state and local taxes like property tax. Those changes mean most Americans—an estimated 87% of taxpayers—won’t have a compelling reason to itemize their deductions and, therefore, won’t be eligible for extra charitable deductions. Traditional methods like donating appreciated stock, for instance, may not hold the tax-advantaged punch it once had.
If your tax deductions fall within or near this new range in which itemizing is no longer beneficial, it may be time to talk to a tax advisor about rethinking your donation strategies. More taxpayers are “bunching” donations and other deductions into targeted years and using tools like donor-advised funds (DAFs) and charitable remainder trusts (CRTs) to do so, thus pushing their deductions past the standard deduction threshold.
We’ll cover DAFs in our next post. In the meantime, feel free to contact us with questions.
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