How the Tax Cuts and Jobs Act Affects Charitable Givers

If you are a charitable giver, the Tax Cuts and Jobs Act (TCJA) can make it more difficult to gain tax benefits from your generosity. However, there are ways to work around the issue. Here are some items to consider.

Increased Charitable Deduction Limit

Under prior law, the deduction for cash contributions to public charities and certain private foundations was limited to 50% of Adjusted Gross Income (AGI). The TCJA increases this limit to 60% of AGI for 2018–2025. Deductions that are disallowed by the 60%-of-AGI limit can generally be carried forward for five years. While this is a favorable development, most folks don’t donate enough to benefit from this change.

Much Bigger Standard Deductions

To deliver any tax-saving benefit, your itemized deductions, including charitable donations, must exceed the applicable standard deduction. Under the TCJA, the standard deductions for 2018 are $24,000 for married joint-filing couples, $18,000 for heads of household, and $12,000 for others. One way to work around the standard deduction is to bunch together your charitable donations in alternating years. That way, your total itemized deductions may exceed the standard deduction amount every other year.

Donations to Obtain College Athletic Event Seating Rights

Under prior law, you could treat 80% of a payment as a charitable donation if: (1) the payment was to or for the benefit of a college or university and (2) the payment would be treated as a deductible charitable donation except for the fact that it entitled you to receive (directly or indirectly) the right to buy tickets to athletic events in the institution’s stadium. Thanks to the TCJA, charitable deductions under such arrangements are eliminated, starting in 2018. This change is permanent.

Charitable Donations from IRAs More Attractive Than Ever

Once you’ve reached age 70½ and have more money than you really need, you can make cash donations to IRS-approved charities out of your IRA. These so-called Qualified Charitable Distributions (QCDs) allow you to replace some or all of this year’s taxable IRA required minimum distributions with tax-smart QCDs. Contact us if you are interested in learning more about the QCD strategy.

Consider Establishing a Donor-advised Fund

Donor-advised funds established to benefit IRS-approved charities are a cost-effective alternative to private foundations. They can be established with minimal start-up costs and offer immediate income tax deductibility, no excise tax, no annual tax reporting, reasonable annual expenses, and, if desired, anonymity.