lf you are a charitable donor the Tax Cuts and Jobs Act (TCJA) can make it difficult to gain tax benefits. However, there are ways to work around the issue. Below 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 not allowed by the 60%-of-AGI limit can generally be carried forward for five years. While this is a favorable development, most folks do not donate enough to benefit from this change.
Bigger Standard Deductions
To deliver any tax-savings benefit, itemized deductions including charitable donations must exceed the applicable standard deduction. Under the TCJA, the standard deduction 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
Previously, you could treat 80% of a payment as a charitable donation if:
• The payment was to (or) for the benefit of a college or university; and
• 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.
Charitable deductions under such arrangements are permanently eliminated starting in 2018.
Charitable Donations from IRAs are More Attractive
Once you have reached the age of 70 1/2, you can make cash donations to IRS-approved charities out of your IRA. This so-called Qualified Charitable Distribution (QCDs) allows you to replace some or all of this year’s taxable IRA required minimum distributions with tax-smart QCDs. Contact an MCB Tax Advisor at 703-218-3600, 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. Contact an MCB Tax Advisor at 703-218-3600 if you are interested in learning more about the donor-advised fund strategy.
While the TCJA can make gaining tax benefits from charitable donation more difficult, MCB Tax Advisors can help you work around the issue and help you implement strategies to make your donations more tax-effective under the new law. Please contact an MCB Tax Advisor at 703-218-3600 or click here. To review a summary of recent tax news articles, click here. To learn more about MCB’s tax practice and our tax experts, click here.