“My charitable contributions no longer provide me any tax benefits! … What!?”
Per the IRS, the standard deduction for individuals is now $12,000 for those filing single and $24,000 for those married filing jointly. There is an additional deduction of $1,300 and $2,600 for those over age 65.
The tax law changes have forced many to use the standard deduction, therefore, eliminating the ability to deduct medical expenses, property taxes, home mortgage interest and charitable gifts among other items.
There are some different ways to give and reap tax benefits.
Here are a couple of different approaches we are using with our clients’ giving strategies:
1. Use Your IRA to Make Tax-Free Gifts
If you are over 70-½, your Required Minimum Distribution from your IRA can be used to make charitable contributions. The contribution must be made directly from your IRA custodian to the charity. This will allow these funds to never be taxed. The distribution portion going to the charity is not added to your income for tax purposes. In other words, it will lower your taxes, allow you to give more and save you money.
Here’s an example:
“Ron and Emma” are in their mid-70s and have been itemizing expenses on their tax return rather than taking the standard deduction. Even though they paid their mortgage off years ago, their medical bills, property taxes and, most of all, church and charitable giving have pushed them past the point of using the standard deduction.
Recently, we met and advised them to use their Required Minimum Distribution to make their charitable giving rather than writing a check from their bank account. We can set this up to make a monthly, quarterly or annual gift from their IRA account.
Charitable Checks for IRA Accounts: Some custodians, such as one of ours, have started issuing checkbooks to make it flexible and easy for IRA owners to make these contributions.
2. Making Gifts in Advance
Make your contributions tax-deductible and avoid capital-gain tax.
Get your deduction this year and distribute to charities later.
Here’s an example:
“Mary” is a 67-year old widow. Her annual charitable giving was about $10,000 per year. She had a recent decrease in property taxes after the sale of a second residence. Also, her mortgage was paid off, eliminating the mortgage interest deduction. Due to this and the increase in the standard deduction, she can no longer itemize her deductions.
After a discussion with her accountant, we helped her establish a Donor Advised Fund with the South Carolina Christian Foundation and make the next three years’ worth of giving in 2018. She contributed low basis stock to the fund, allowing her to avoid the capital-gain tax. This will allow her to itemize her deductions in 2018 and take the standard deduction in 2019 and 2020.
In 2020, when she turns 70-½ and must begin her Required Minimum Distribution from her IRA, she will then use the funds to make charitable contributions directly to the charity. This will allow to her avoid paying taxes on the distribution from the IRA and donate to the charity tax-free.