Personal Finance

What the new tax law means for your charitable giving

Key Points
  • Under the Tax Cuts and Jobs Act, it is harder to claim the tax deduction for charitable contributions.
  • Here's how to plan your giving to hold on to that popular tax break.
Charitable giving
Charitable giving

Doing good is its own reward. Reaping the tax benefits is a nice perk.

While taxes might not have been at the forefront when providing aid to others, the tax deduction for charitable contributions has typically helped shave money off your tax bill if you itemize instead of taking the standard deduction.

But under the new Tax Cuts and Jobs Act, that threshold is tougher to clear. Although the deduction for donations is unchanged, you'll still need to itemize to claim it, and that's a much higher bar with the nearly doubled standard deduction.

"With a higher standard deduction, there will be less people who benefit from donating to charity," said Eric Bronnenkant, a certified financial planner and CPA and the Head of Tax at online financial advisor Betterment.

(Under the legislation, an individual would need total itemized deductions to exceed $12,000, the bill's new standard deduction for individual taxpayers, up from the current $6,350. Married couples would need deductions exceeding $24,000, up from a current $12,700.)

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A new congressional report estimates that 18 million households will itemize deductions this year, down from 46.5 million last year.

"Without itemized deductions, most people will lose all tax benefits associated with charitable giving," said Kimberly Dula, a partner at the accounting firm Friedman LLP in Marlton, New Jersey.

For charitable donors aren't ready to let go of that tax break, there are still several ways around the new rules.

With a higher standard deduction, there will be less people who benefit from donating to charity.
Eric Bronnenkant
head of tax at Betterment

For starters, try a strategy called "bunching." Rather than giving every year, "give a greater amount every other year," said Amy O'Loughlin, a director in CBIZ MHM's tax and business services division in Phoenix, Arizona.

For example, instead of giving $5,000 to charity annually, accelerate the gift by giving $10,000 every two years. This way, you can get your itemized deductions over the limit one year and take the standard deduction the next.

Similarly, a donor-advised fund lets you make a charitable contribution and receive an immediate tax break for the full donation, and then recommend grants from the fund to your favorite charities over time.

"You can put in $10,000 and get a one-time tax deduction and spread your donations out to the charities you support," O'Loughlin said.

Retirees, age 70½ or older, might also consider transferring money from their IRA to a qualifying charity. Such qualified charitable distributions can be a tax-efficient way of meeting your required minimum distribution — and you don't need to itemize your deductions to benefit, according to Bronnenkant.

There are a few other tricks, too, like avoiding the capital gains tax on investments by giving stocks or other appreciated assets, such as artwork and antiques, which have grown in value.

"A standard practice on how to leverage charitable donations is to donate appreciated assets," said Bronnenkant.

High-income earners, in particular, should consider a noncash donation specifically because of the tax advantages, he said.

And of course, "you can always give to charities without getting the tax break," O'Loughlin added. Regardless, "Americans are very generous. I think they will always give to charity."

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