With the holiday season already upon us and the calendar year rapidly winding to a close, it is once again time to start thinking about gift-giving–from presents for family and loved ones to charitable contributions made to nonprofit organizations. In the wake of last year’s year-end tax changes, however, you may want to consider altering the approach you have traditionally taken to making charitable donations–at least when it comes to how such donations can impact your tax situation.
If you have typically itemized deductions on your tax returns, you should take time to review your tax plan before deciding how much you will allocate to charitable donations. The Tax Cuts and Jobs Act of 2017 limited the tax benefits that some people have traditionally received from making sizable year-end charitable donations.
Under the new tax rules, Americans can now claim a standard deduction of $24,000 (for married couples), which is double the previous $12,000 limit. Add to that the fact that property tax deductions are now limited to $10,000, and that many of the deductions people previously relied on have been eliminated altogether, one might have to significantly increase the amount given to charity in order to realize any benefit from itemizing on one’s tax returns. That doesn’t mean you should suddenly abandon charitable donations, it just means you need to approach making them more strategically.
For example, if you have typically made $10,000 in charitable donations each year, instead of doing that again for tax-year 2018, you may want to hold off on giving for a couple of years, or pre-pay the donations you had planned to make in 2019 and 2020 as well. Bundling the donations you had planned to make over multiple years into one larger donation would allow you to exceed the new $24,000 standard deduction amount. And don’t forget, such donations need to be made by the end of the calendar year in which you are planning to deduct them on your taxes. Also, if a tax deduction is a motivating factor in your contributions, make sure that any organization you donate to is actually a section 501(c)(3) entity, one that is recognized by the Internal Revenue Code as being eligible for a tax-deductible contribution, and always get receipts for contributions of $250 or more.
The new tax rules shouldn’t deter you from making charitable donations; they just mean that you need to think a little more about how you will make such donations than you did in the past. Speak with your accountant or other tax professional to find out which approach makes the most sense for you and how charitable giving can help your overall tax circumstances.