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‘Tis the Season: How the Tax Cuts and Jobs Act Changes the Deductions for Charitable Giving

Dec 26, 2018 12:23:00 PM / by CSI Accounting Staff posted in small business taxes, small business operations

It’s the most wonderful time of the year! At the end of the year, charitable donations soar as individuals scramble to get them in before the end of the tax season. It feels good to give. (Really, you should do this. Giving is its own reward.) It also doesn’t hurt that in year’s past, you’d also get a big deduction for doing the right thing.

Under the new Tax Cuts and Jobs Act, figuring out these deductions is harder to clear. Although the deduction for actually giving a donation hasn’t changed, how you go about it has. That’s going to take a little planning and tax smarts to get you there. So don’t be a Scrooge this year; here’s how you can still get your max deduction AND help out your favorite charitable cause in the process. Fa la la la la, la la la la.

It’s all about bunching your donations.

The big change in 2018 is the implementation of the Tax Cuts and Jobs Act, which sort of leveled the types of deductions available and also raised the higher standard deduction. An individual now would need their total itemized deductions to exceed 12k, instead of the current 6k. That’s not nothing;  a new congressional report shows that an estimated 18 million people will itemize deductions this year, down from 46 million last year.

If you’re a charitable donor but missing that tax break, there are a couple ways around the new rules. One strategy that seems to work is called bunching. Basically, you’ll just give double the amount every other year. Let’s say you give 7k to your favorite charity annually, so you’ll instead give 14k every two years. That way you can get itemized deductions over the limit in the years you donate, and the standard deduction the years you don’t. It requires a little more planning, but it's worth the wait if you’re itching for that deduction.

Consider a donor advised fund.

If you normally give charitable contributions, a donor-advised fund can let you receive an immediate tax break for the full donation, then recommend paying out grants from that fund to qualified charities over a longer period of time. It’s a good way to get over the threshold, especially if you have the means to do it all at once. It can feel overwhelming, but if you do your research on which donor-advised fund is best for you, you’ll end up with a winner.

Better yet, contact your accountant with this information and ask what else they can do. There are other tricks like donating stocks or transferring money from your IRA (if you’re 70 ½ or older) that can also be a tax-efficient way of getting to the required minimum distribution. It’s important to make sure that you’re fiscally literate and working with a professional so that you don’t run afoul of any tax law by looking for these advantages. A good accountant will be knowledgeable and help you through this process.

Remember what Paul McCartney told Chris Farley on SNL, “The more you give, the more you get!” Words to live by.

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CSI Accounting Staff

Written by CSI Accounting Staff

Client Development Manager