How will the TCJA Impact my Charitable Deductions?
posted Nov 28, 2018 by Leigea Landry, CPA, MST in the Global Tax Blog
As we approach year-end planning, it is important to consider the potential impact of the Tax Cuts and Job Acts (TCJA) on your charitable giving. If you plan to donate to charity, make note of some fundamental changes made to the tax law that will impact the tax benefits of your contributions.
Standard deductions and itemized deductions...some important changes to note!
To refresh your memory….
Standard deduction: The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your tax filing status. Beginning in 2018 the standard deduction is nearly doubled ($24,000 for most married taxpayers and $12,000 for most single taxpayers). Read more in our blog, Tax Reform FAQs: Are Personal Exemptions and Standard Deductions Still Allowed?
Itemized deduction: Itemizing means listing out each deduction you qualify for, the sum of which is used to lower your adjusted gross income. Check out our blog for more on these, The New Tax Law & Its Impact on Itemized Deductions.
Which one should you take?
Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.
Review your 2018 expenses, you may be on the cusp of either using the standard deduction - rather than actual itemized deductions which include:
- Medical expenses that are more than 7.5% of your income
- A maximum of $10,000 for state income tax and property tax paid
- Home mortgage interest & certain investment interest
- Donations to charity
If your specific deductions are currently close to the standard deduction amount for 2018, you may benefit by adjusting your plans for the remainder of the year.
Donations in particular may involve some planning.
The TCJA enhanced the deduction for charitable contributions by raising the limit that can be contributed in any one year. The limit is now 60% of adjusted gross income, up from 50%. So, if you still itemize, you can continue to deduct charitable contributions, but it only reduces your taxes if all your itemized deductions exceed the newly raised standard deduction amounts. Some taxpayers who have lost the value of some deductions (such as the state and local tax deduction) may make up the difference by contributing more to their favorite charity so they can continue itemizing.
Planning is Key! Here’s an example.
For example, if a taxpayer with the filing status Married Filing Jointly (MFJ) has a total interest deduction of $9,000, state and local taxes of $10,000 and charitable contributions of $3,000, that taxpayer will not qualify for the itemized deductions.
Their total itemized deductions of $22,000 ($9,000+$10,000+$3,000) is below the MFJ standard deduction of $24,000 and as result, it would in the best interest of the taxpayer to take the standard deduction and forego the tax benefits of their cash charitable contributions. Alternatively, it may be time to accelerate intended donations to December and reduce amounts in 2019.
We can help you understand various charitable contribution opportunities, which may include the use of a bunching strategy or donor-advised funds. (We have a blog on this! Did the TCJA Impact Donor Advised Funds? Check it out.) To make sure you are optimizing all of the tax benefits available to you for the upcoming filing season - contact us.
The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.