The new tax law may make it harder for some taxpayers to claim a tax deduction for charitable contributions. However, there are a couple of options for you to consider if you want to make the most of your charitable donations under the new tax law.
The Tax Cuts and Jobs Act, enacted in December 2017, nearly doubled the standard deduction to $12,000 for individuals and $24,000 for couples. This means that if your charitable contributions along with any other itemized deductions are less than $12,000 for the tax year, the standard deduction may lower your tax bill more than itemizing your deductions. For most people, the standard deduction will be the better option.
If you still want to maximize the tax benefits of charitable giving and you have the financial means, one option may be to double your charitable donations in one year and then skip the donation the following year. For example, instead of giving $10,000 a year to charity, you could give $20,000 every other year and itemize your deductions in that year.
Another way to concentrate charitable giving may be to establish a donor-advised fund (DAF) through a public charity. A DAF allows you to contribute several years’ worth of charitable donations to the fund and receive the tax benefit immediately. The money may be placed in an account where it can be invested and grow tax-free.
You can then make or recommend donations to charities from the account or add to it at any time. As with any investment, proper research is required before establishing a DAF. Make sure you understand the fees involved and whether there are any limits on the contributions you can make. You should also consult with your financial advisor before taking any steps.
If you are age 70 and a half or older and taking required minimum distributions from an IRA, another option may be to donate those distributions directly to charity through a qualified charitable donation. The distributions won’t be included in your gross income, which should result in lower taxes overall. The donation must be made directly from the IRA to the charity, and different IRA custodians have different rules about how to make the distributions.
To determine whether any of the above options will benefit you given your particular circumstances, you should consult with an experienced attorney and financial advisor.