Charitable Implications for New Tax Laws
By Cody Tresselt-Warren
You might have heard by now that a new tax bill was signed into law in 2017. Perhaps you have even seen a change in your paycheck as a result. But have you considered the changes, if any, to charitable giving?
In the new tax plan, the standard deduction increased to $12,000 for single taxpayers and $24,000 for married taxpayers filing jointly. With the increased standard deduction, donors who make smaller charitable gifts may not be able to deduct them, while some donors may continue to receive a deduction for larger charitable gifts. Of course, many will continue to give whether they receive a deduction or not. However, there are some ideas that could be used to receive a tax deduction and continue to support the organizations that are important to the donor.
Planning to Make the Most of Your Gifts
One approach to consider is to “clump” donations into one tax year. For example, instead of donating $5,000 to charities every year, donate $25,000 every five years. The goal is to ensure that all tax deductions, including charitable, exceed the standard deduction. A particularly useful tool in this scenario is a donor advised fund (DAF). With the donor advised fund, the donor can still control when a charity receives gifts and retain the tax deduction in one year.
Another approach that was retained in the tax bill is the IRA qualified charitable distribution (QCD). The QCD allows the owner of an IRA to satisfy their required minimum distributions, in part or fully, with direct contributions to a public charity up to $100,000, annually. For taxpayers who do not itemize, this is a tax efficient way to make charitable gifts, satisfy a required minimum distribution, and not increase taxable income. Charitable distributions from IRAs cannot be made to donor advised funds or private foundations.
Finally, donating appreciated property directly to charity or a donor advised fund remains a planning option. When donating long-term appreciated property, the taxpayer can usually deduct the fair market value and not recognize the capital gain as taxable income. Long-term appreciated property can be marketable securities, bonds, real estate, or other assets. A donor advised fund can be helpful to assist with contributions to smaller charities that may not be well suited to handle appreciated property gifts. The donor advised fund would act as an intermediary so that the charity can receive a direct cash gift from the donor advised fund.
Professional Advisors Network
As a donor-partner and member of the Professional Advisors Network at the Women’s Foundation of Minnesota, I enjoyed the opportunity to share in conversation on the new tax law and its charitable implications on May 7 with a panel of other financial professionals. We intend for our sessions to serve as a resource for other financial professionals as we work together to help clients achieve their goals.
The Professional Advisors Network gathers around topics we all care about — helping clients reap financial benefits, build a legacy, and create positive change in our community. For more information about the Professional Advisors Network, contact Lizzie King at lizzie@wfmn.org or 612-236-1832.
Cody Tresselt-Warren, CFP® is a donor-partner and member of the Professional Advisors Network of the Women’s Foundation of Minnesota. He lives with his wife and two children in Rosemount.
The information provided is for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment, or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment, or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
