“Were Americans as generous with their charitable giving in 2018? A record $410 billion dollars was given by individuals in 2017, according to Giving USA. Two factors may reduce giving: the recent income tax cuts and a rough-and-tumble December for investors.”
Research shows that about a third of the year’s online giving is done in December. That looks like some last minute gifts. But what if you took the time to define your charitable mission and prepared in choosing your charities?
The Reno Gazette Journal’s article, “Get an early jump on charitable giving” looks at tax planning opportunities for charitable giving, specifically in light of the Tax Cuts and Jobs Act and Qualified Charitable Distributions (QCD). Here’s a review of why people give. The primary reasons for donating include the following:
- Personal experience;
- Being proactive in solving a problem;
- Taking a stand on an issue;
- Personal recognition;
- It’s a good thing to do; and
- Making a difference.
The true effect of the new tax laws won’t be known, until after the country’s tax returns are filed in April. Some–such as Giving USA–think that charitable giving will decrease, but others contend that high-income taxpayers will be motivated to donate more.
It’s now more difficult for individuals to hit the threshold required to qualify for the deduction. Taxpayers can either take the standard deduction or itemize their deductions. The standard deduction has doubled. Deductions for state and local taxes are capped at $10,000, and mortgage interest may be limited. The Council on Foundations estimates 5 to 12% fewer Americans will itemize. So if you can only take the standard deduction, think about “lumping” contributions into every two or three years to itemize deductions for that year.
QCDs are direct transfers from IRAs to eligible charities. For this to happen, the IRA accountholder must be 70½ or older. The benefits of the QCD include:
- The distribution goes directly to charity from the IRA;
- It's not includible in your income; and
- It counts towards satisfying your required minimum distribution (RMD).
Note that QCDs can come only from IRAs and not from employer-sponsored plans (SEP, SIMPLE and 401(k)). However, you might be able to roll those employer plans to IRAs to be eligible for QCDs.
If you qualify for itemized deductions, the QCD is still better for you because it reduces your AGI, which is more favorable than a charitable deduction which reduces taxable income.
You should also remember that donor-advised funds and private family foundations are excluded.
Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.
Reference: Reno Gazette Journal (January 9, 2019) “Get an early jump on charitable giving”
Suggested Key Terms: Estate Planning, IRA, 401(k), SEP, SIMPLE, Required Minimum Distribution (RMD), Charitable Donation, Donor-Advised Funds