Rightfully so, many have expressed concern that their contributions from donors may go down under the rules passed with the new tax law. After all, deducting your donations just got harder. With a new standard deduction that is practically double what is has been – fewer taxpayers will get a tax benefit from their charitable contributions. We believe, as the most giving society on earth, charities will continue to receive much needed generosity.
“For it is giving that we receive.” -Francis of Assisi
We have a few tax planning strategies to consider under these new rules. One permits anyone 70 ½ or older to make a direct transfer of IRA balances up to $100,000 per year to a charity. For most donors, these qualified charitable distributions (QCDs) make it possible to net an ever-greater tax benefit because those dollars will never hit your adjusted gross income (AGI). Because you would have paid income taxes on that distribution, this strategy offers significant benefit to those who would have given that amount regardless. Added Bonus: QCDs go toward satisfying your required minimum distribution (RMD). Bear in mind, though, that QCDs must come from IRAs; they cannot come from 401(k)s SEP Plans or Simple IRA’s and must be paid directly to the charity and not received by the owner of the IRA.
Another option, charitable stacking or lumping, is quickly emerging in financial planning circles as the charitable strategy of the future. It’s not complicated. Instead of giving $10,000 per year over five years to a charity, you would give $50,000 in one year, taking you above the new $24,000 standard deduction and thus providing a tax benefit for your contribution. I’m going to take it a step further and say you should stack your entire Schedule A. In other words, you should make charitable contributions in years when you have significant medical expenses or larger than normal state and local taxes.
Other key points to consider:
- We are unable to deduct the value of our time.
- Consider donating appreciated assets and remember if valued over $5,000 an appraisal is required in order to be tax deductible.
- We should heavily consider local charities more than ever due to so many needs close to home and within our community.
- Other charity options include WV tax credits up to 50% of the amount donated – for complete details contact the Jackson County Community Foundation.
If you have any questions about this tax law or any new tax laws or changes, I encourage you to reach out to our office.