How Tax Law Changes Will Affect Your Charitable Giving Deductions

The 2018 tax law changes still allow you to deduct charitable donations, but due to some differences in the new law, many of you will no longer benefit from your charitable donations.  The standard deduction for a couple is now increased to $24,000.  This means that it may be in your best interest to take the standard deduction rather than itemize your deductions (such as mortgage interest, real estate taxes, and charitable contributions).

According to the IRS, about 30% of taxpayers have been itemizing their deductions up till now.  They are projecting that only about 10% of taxpayers will itemize deductions under the new law.

There are many people that only give to charity so they can get that deduction each year.  But not everyone gives to charity only for the tax write off.  If you are charitably inclined and give to charities because you support a cause, you probably won’t change your charitable donation habits this year.  However, some of you may want to change THE WAY you give money to your church or charity.

Required Minimum Distributions (RMD’s)

People who are taking RMD’s each year, and who are charitably inclined, are IN LUCK!

If you are over the age of 70-1/2 (yes, the IRS chose that specific age), then you are required to take a minimum amount of money out of your IRA each year, and pay taxes on it.  The amount is based on a life expectancy table and the percentage go up a little each year.  Most people just take the money out, pay their taxes on it, and move on.  If you fall into this category, and you are someone who gives to charities, this strategy COULD help you.

You can gift money from your IRA directly to a qualified charity, which satisfies the minimum required distribution rules set by the IRS.  If you do this, the money you gift to the charity from your IRA will not be included in your taxable income.  This will help you lower your taxable income while giving to your charity of choice.  If you’re not someone who will have itemized deductions over the $24,000 annual amount, you should definitely consider doing this.  Taking all or part of your RMD this way will let you still take the higher $24,000 standard deduction, and still benefit from your donations to charity.  To do this, you have to have your IRA custodian send the RMD amount directly to the charity.  You’ll still get a 1099 for the withdrawal from your IRA, but the amount that went to charity will not be included in your taxable income.

Talk to your tax adviser soon to see if this strategy could help you.  I have a few clients who have already started doing this, and I suspect it will become a more common strategy as the year moves on.

2 Responses

  1. Interesting.....should I pay tithing to my church with my RMD?

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