Charities are expected to receive fewer donations this year as a result of the new tax laws that, among other things, eliminated or sharply reduced the tax benefits of charitable giving for many Americans.
Since the standard deduction claimed by individuals or couples has nearly doubled, fewer people will itemize their deductions and you must itemize in order to deduct charitable contributions from your taxes. In light of these changes, the Tax Management & Financial Horizons offers the following tax tips to help you maximize the impact of charitable contributions while complying with the new tax laws.
- Bundle Your Donations
One way to surpass the new standard deduction of $12,000 for single filers and $24,000 for couples is to save money over time and donate every two or three years instead of every year. One popular way to do this is by donating to a Donor-Advised Fund (DAF). Contributing to a DAF qualifies you to receive tax benefits now, enables your donation to grow tax free, and gives you the ability to decide later how you wish to make grants from that fund to qualified charities.
- Retirees: Make a QCD from Your IRA
If you are aged 70.5 years or older you may make a qualified charitable distribution (QCD) from your IRA directly to a charity in lieu of taking a required minimum distribution (RMD) from that IRA each year. Using a QCD enables you reduce your taxable income by the amount donated, up to 50 percent of your adjusted gross income. Making a QCD may also enable some you to lower or eliminate capital gains taxes you would otherwise pay if the RMD from their IRA would have moved them into a higher tax bracket. Also, a QCD may reduce the amount of Social Security income that is taxes.
- If You’re Feeling Especially Generous
The limit on charitable deductions has increased from 50 percent to 60 percent of your adjusted gross income. While donating more than half of your income to charity may not be a practical option for most, charities will certainly appreciate the largesse of those wealthy or generous enough to donate at such levels. Similarly, your college or university will appreciate your purchase of season tickets, so you can entertain clients at campus sporting events. However, the cost of those tickets no longer qualifies as a business entertainment expense.
- Don’t Forget the Basics
Make sure the organizations to which you donate are tax-exempt. One way to be certain is by using the tax exempt organization search tool available on the IRS website. You may also confirm an organization’s status by calling the IRS at 1-877-829-5500, but using their online tool is generally faster. The staff at Tax Management & Financial Horizons can help you maximize the impact of your charitable contributions by helping you understand the impact of the new tax laws. Call 262 923-8100 to make an appointment with a tax professional today