Should I Still Give to Charity?
Of course you should.
The new tax rules mean that fewer individuals will be able to deduct charitable contributions on their tax return. That’s because the standard deduction has been nearly doubled so that it is less likely that adding up all your individual deductions (mortgage interest, property tax, charitable deductions, etc) will exceed the standard deduction everyone is now entitled to ($12,000 for singles, $24,000 for joint filers).
But charities still need your help, maybe even more so today. So however you are inclined to help, whether it is your local soup kitchen, refugee children, Alzheimer’s research, or any other worthy cause, please continue to give. In a sense you are getting credit for your donation in the expanded standard deduction.
There are some potential options for giving to charity and still getting a tax deduction:
For individuals over age 70 - If you need to take required minimum distributions from your IRA retirement account, you can choose to send part or all of that amount directly to a qualified charity. In this way you avoid being taxed on that amount and you can still take the increased standard deduction. An additional benefit is that giving this way reduces your Adjusted Gross Income (AGI). Reducing your AGI may reduce your taxes in other ways, the most important is that your AGI is used to determine whether your Medicare premiums are increased.
Bunching your contributions - You may be able combine two years’ worth of contributions into a single calendar year so that you can itemize your deductions in that year and take the standard deduction in the other. For example, if you normally donate $4000 each year, and your itemized deductions ($23K) are close to the standard deduction ($24K), you could donate $8000 one year and itemize $27K and take the standard deduction the other year.
Donor advised fund (DAF) - If you make significant charitable contributions, say $10,000/year or more, you could set up a DAF. You would set it up with multiple years’ worth of contributions (say $50,000), get the deduction for that full amount in that one year, and take the standard deduction otherwise. You would then be able to make your typical contribution to your charities as you usually do from your DAF each year. This option imposes a modest additional cost for the DAF organization to manage and administer your account. This option is particularly beneficial if you are able to donate appreciated stock. In this way you not only get a tax deduction for the current value of the stock, but you avoid paying tax on the profit you would make from selling the stock if you had not donated it.
Email your questions in to email@example.com, and we may address some of the topics raised in a future blog post.