Tax Law Changes and Your Donations
Now that the temperature has dropped, it’s hard to believe it’s time to start thinking about taxes! There are things you can do before December 31st that can affect your tax return for the 2018 year. Whether to donate to your charity of choice is just one of those decisions. The new tax law change, which took effect at the first of the year, will prevent many households from claiming a charitable deduction. However, there are still a few ways to get a tax break, especially if you’re making required minimum distributions (RMDs) from your traditional IRA.
First, a quick review of tax rules on charitable deductions. You can only claim itemized deductions, including charitable giving, when the amount exceeds the standard deduction. That's a lot harder to do under the new tax law, which has nearly doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. For example, it may be tough for a married couple to exceed that standard deduction of $24,000 if they tried to itemize.
We all realize that the gift of donation is more than Uncle Sam’s tax break. It’s about giving back to the community, doing good and feeling good while contributing. However, there is an appeal to doing good in the community and benefitting from that charity. Let’s explore those options.
Appreciated investment assets.
The benefit of this is that your income tax deduction will be based on the fair market value of the gift when you donate it and you will not incur any capital gains on the asset’s appreciation. This is a wonderful way to give a low or zero cost basis stock or mutual fund to your charity of choice in lieu of cash.
By bundling your tax deductions in a specific year. If you can exceed the standard deduction for a year, then consider bundling your deductions for a two-year time period. For example, if a single filer has $8,000 in deductions and typically were to give $3,000 a year to charity, if they were to bundle their contribution and contribute that for a two-year amount of $6,000 they would receive a write off of $2,000 and still be giving the same amount. If managing the funds in this way is confusing, there are banking/investment accounts that can accomplish this for you called donor advised accounts.
RMD IRA Withdrawal
Finally, if you are over 70 1/2 you are used to making the withdrawals from qualified plans. A gift of an IRA withdrawal that counts as part of your required minimum distribution (RMD) to your charity, like the USTA/Midwest Tennis and Education Foundation, allows you to make a donation as well as reducing taxes. It does not count towards your adjusted gross income which also may allow you to qualify for lower Medicare premiums.
If you wish to speak with a representative from the Foundation to discuss further, please email Elizabeth Dickison at Elizabeth@midwest.usta.com.
Of course, be sure to confer with your advisor on specific tax advice for your circumstance. This information is to stimulate alternative donation ideas in preparation of tax time and not to be construed as tax advice.