How will the new tax law affect you and your charitable giving?

The new tax law became effective on January 1, 2018. Of the numerous changes, the two most directly affecting charitable gifts are:

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

Both of the above will increase the number of individuals claiming the standard deduction, and thus reduce the number of people who will itemize and take an income tax charitable deduction. Although, if you live in a state with high income and property taxes and you have a mortgage, you could find that you may still choose to itemize.

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

  • Make gifts of appreciated property such as publicly-traded securities to charity. Even
  • if you don’t itemize, you will still be able to avoid capital gains tax by making a gift of appreciated assets owned by you for at least one year.
  • Make gifts to charity using the charitable IRA rollover. If you are over 701⁄2, you can make a direct transfer from your traditional IRA or Roth IRA to charity of up to $100,000. Such a transfer is not taxable and counts towards satisfying your required minimum distribution.
  • Make larger gifts to charity. If your total non-charitable deductions are close to equaling the standard deduction, a larger 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 to charity 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 a beneficiary of all or a portion of your retirement plan can avoid the income tax that might otherwise be due from your heirs. This is an extremely tax-efficient way for you to make gifts to charity that will cost your heirs less than giving other kinds of assets.

You should contact your accountant or financial planner to understand how the new tax law will affect your individual tax situation.