Donations generally pick up as the holidays approach; this year could be an exception.
Because of the recent tax changes, most taxpayers won’t be able to claim a deduction for their charitable contributions — and if they can get a break, most won’t get as much of a tax savings on the dollars that they donate.
For starters, the Tax Cuts and Jobs Act lowered individual income tax rates and that reduces the value of all tax deductions, including your charitable contributions.
Further, even though the deduction for donations was unchanged, you still need to itemize to claim it, and that’s a much higher bar with the nearly doubled standard deduction.
The Urban-Brookings Tax Policy Center estimates that the new tax law will shrink the number of households claiming an itemized deduction for their charitable gifts from about 37 million to about 16 million in 2018.
As a result, many experts fear donations could decline for the first time in decades. Altogether, charitable giving has increased year over year almost every year since 1976, Charity Navigator said.
While taxes do not have been at the forefront when providing aid to others, there are still tricks to make the most of your contributions and reap the benefits at the same time.
“People think that tax strategies as it relates to charitable giving are only for the wealthy,” said Howard Hook, a certified financial planner and CPA with the wealth management firm of EKS Associates in Princeton, N.J. “You don’t need to give a lot to do a lot of good.”
“If following one of these tax strategies doesn’t allow you give more, but allows you to give something, then that’s great,” Hook said.
Before giving a dime, look to see how a group stacks up at rating sites like CharityWatch.org, CharityNavigator.org or the Better Business Bureau’s Wise Giving Alliance. Those sites assess criteria such as how transparent a nonprofit is about its finances and how much of its budget goes toward programs.
The organization you’re giving to should be able to provide information and documentation to confirm it’s a registered 501(c)(3) or use the tax-exempt organization search tool available on the IRS website.
One way to surpass the new, higher standard deduction is to save money over time and donate every two or three years instead of every year.
For example, instead of giving $5,000 to charity annually, accelerate the gift by giving $10,000 every two years. This way, you may get your itemized deductions over the limit one year and take the standard deduction the next.
One way to accomplish this is with a donor-advised fund, which lets you make a charitable contribution and receive an immediate tax break for the full donation, and then recommend grants from the fund to your favorite charities over time.
Another wise tax move would be to avoid the capital gains tax on investments by donating stocks or other appreciated assets, such as artwork and antiques, which have grown in value.
High-income earners in particular could consider a noncash donation specifically because of the tax advantages. After the market run-up earlier this year, even those who have small holdings could benefit by donating appreciated investments before the end of the year.
Retirees age 70½ or older might also consider transferring money from their IRA to a qualifying charity in lieu of taking a required minimum distribution.
Such qualified charitable distributions can be a tax-efficient way of meeting your required minimum distribution — and you don’t need to itemize your deductions to benefit.
Using a qualified charitable distribution lets you reduce your taxable income by the amount donated, up to 50 percent of your adjusted gross income, according to the National Association of Enrolled Agents.
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