Tax Strategies for Optimizing Charitable Donations under New Tax Laws
Maximize the impact of your charitable donations on #GivingTuesday and beyond
WASHINGTON, D.C., November 19, 2018 – The National Association of Enrolled Agents encourages everyone to make a charitable contribution on #GivingTuesday, November 27. 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, NAEA offers the following tax tips to help you maximize the impact of your 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
Taxpayers aged 70.5 years or older may make a qualified charitable distribution (QCD) from their IRA directly to a charity in lieu of taking a required minimum distribution (RMD) from that IRA each year. Using a QCD enables one to reduce his or her taxable income by the amount donated, up to 50 percent of one’s adjusted gross income. Making a QCD may also enable some taxpayers to lower or eliminate capital gains taxes they would otherwise pay if the RMD from their IRA would have moved them into a higher tax bracket.
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.
Charity Navigator is another great resource for learning about the financial health, accountability, and financial transparency of a given charity. Charity Navigator provides independent evaluations of more than 9,000 charitable organizations. They also provide lists of specific charities working to provide aid to those impacted by natural disasters. For example, click on these links to access lists of highly-rated organizations providing relief for the California wildfires, for Hurricane Michael, Hurricane Florence, Hurricane Lane, and for Puerto Rico and other areas still recovering from Hurricane Maria.
Hire a Licensed Tax Professional
An enrolled agent or other licensed tax professional can help you maximize the impact of your charitable contributions by helping you understand the impact of the new tax laws. Visit the free “Find a Tax Expert” directory at eaTax.org to find an enrolled agent near you.