3 Smart Ways to Give to Charity Under New Tax Law

By Mike Palmer

| Photographs By LightFieldStudios

The 2017 Tax Cut and Jobs Act makes significant changes to the tax code that will affect many taxpayers. While the tax act’s main beneficiaries are corporations (a single 21% corporate tax rate now applies), individuals may also benefit from lower rates and a higher standard deduction.

Perhaps the single biggest change for individuals is a $10,000 cap on state and local tax (SALT) deductions. Taxpayers in states with high income taxes and high real estate property taxes — like New York, New Jersey and California — will be most affected. The Tax Policy Center estimates this change will reduce the number of taxpayers who itemize from 37 million to about 16 million. Capping the SALT deduction may have a ripple effect for some taxpayers — meaning their previously itemized deductions (including charitable deductions) won’t exceed the new standard deduction.

For taxpayers who have a history of making charitable contributions, making sure those contributions have maximum tax benefit may require some additional planning. Let’s review some strategies that could help minimize your tax bill while also helping to do good.

A Chunky Way to Give to Charity

The first strategy involves “chunking” two years of charitable deductions into one tax year. By making charitable contributions in January and December of the same year (think of the December contribution as paying one month in advance), taxpayers may be able to claim itemized deductions in the year of their charitable gifting and take a standard deduction in the alternate year. This need not change one’s giving level, merely the timing.

Another Helpful Way to Give: Donor-Advised Funds

A slightly different method to take advantage of the “chunking” strategy is again to make multiple-year charitable gifts in one tax year, but this time via a donor-advised fund (DAF). Contributors to DAFs receive a tax deduction in the year of contribution, while retaining control over the timing of the distribution to the charity of their choice. To illustrate, John & Mary Smith give $25,000 of appreciated stock to a donor-advised fund with their area community foundation in 2018 and deduct this charitable contribution on their 2018 tax return. John & Mary can make distributions from their DAF to support various charities of their choice, perhaps over the next several years.

Finally, You Can Tap Your IRA

Finally, another strategy only available for taxpayers over age 70½ and involves making a qualified charitable distribution (QCD) directly from one’s IRA. A QCD counts towards one’s required minimum distribution (RMD) but is not included in taxable income on the tax return. This strategy results in the taxpayer’s getting the benefit of the charitable contribution (through lower income) irrespective of whether he or she itemizes deductions.

As with any tax strategy, one needs to consult a tax professional on whether certain strategies apply to their specific circumstance. The good news is that with advance planning you can make the new tax law work to your benefit.


The views expressed in content distributed by Newstex and its re-distributors (collectively, “Newstex Authoritative Content”) are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an “AS IS” basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.

Licensed content is provided for informational purposes only, and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA. Copyright 2018 The Kiplinger Washington Editors. This article was written by Mike Palmer from Kiplinger and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Tags - Taxes

Article

Deducting Disaster Losses on Your Tax Return

Article

The Advantages of Filing the FAFSA Form ...

Article

Claim These Tax Deductions Even If You ...