The Tax Reform Act and Charitable Giving

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Of the numerous changes to the new tax law, two items that will most directly affect charitable gifts include:

  • An increase in the standard deduction ($12,000 for singles, $24,000 for married couples filing jointly); and
  • The elimination or restriction of numerous itemized deductions (though charitable deductions remain intact).

Both of the above will increase the number of individuals claiming the standard deduction, potentially reducing the benefit of the charitable deduction. However, depending on your income, property taxes and mortgage, you may find you can still itemize deductions.

Even if you don’t itemize, here are some strategies to consider that enable you to make lifetime gifts to charity and still receive tax benefits:

Make gifts of appreciated property, such as publicly traded securities. You will still be able to avoid capital gains tax by making a gift of appreciated assets held for at least one year.

Make larger charitable gifts. If your total non-charitable deductions close to equal the standard deduction, a large charitable gift may increase your total deductions enough that it makes sense for you to itemize. The additional tax savings that itemizing offers may reduce the effective cost of your gift.

Make a gift from all or a portion of what’s left in your retirement plan. Assets in your IRA, 401(k) or other qualified retirement plan may be subject to income tax when distributed to heirs. Making a charity the beneficiary of a portion of or your entire retirement plan will avoid the income tax that might otherwise be due from heirs. This is an extremely tax-efficient way for you to make charitable gifts that costs heirs less than giving other types of assets.

As with any changes in the law, be sure to contact your accountant or financial planner to understand how the new tax law will affect your individual tax situation.