Tax Update: Considerations to Reduce Your Taxable Income and Guide Your Charitable Support

By Rich Stang, CPA

Clients have asked me many questions about charitable contributions since the passage of the Tax Cuts and Jobs Act of 2017. Many have the impression that contributions are no longer deductible. The bottom line is that the deductibility of charitable contributions is unchanged under the new law. If you itemize your deductions, you can deduct charitable contributions.

However, there have been changes in other areas of the tax law such that the number of people who do itemize will be greatly reduced. This includes many seniors who are retired and are now taking required minimum distributions from their IRAs.

Because of new limits on how much in taxes can be deducted and the fact that the category called “miscellaneous itemized deductions” has been eliminated, many retirees will find that their total itemized deductions will go down. In addition, the standard deduction for a married couple over age 65 has now increased to $26,600. The “standard deduction” is what the IRS “gives you.” You would only itemize if your total itemized deductions exceed the standard deduction. If you don’t itemize, then the fact is that charitable donations will not give you a tax break.

With proper planning, though, there are ways to create tax efficiency for your charitable donations even if you don’t itemize. For those over age 701/2 who are taking their required minimum distributions from their IRAs, the number one way to make charitable donations (especially larger ones) is through a “qualified charitable distribution” (QCD). This is a direct donation from your IRA to a charity.

When you use a QCD, the distribution is automatically omitted from your adjusted gross income. Therefore, you get a tax benefit whether you itemize your deductions or not. Please note that a QCD is only available for those age 701/2 or above.

Lowering your adjusted gross income could bring other benefits as well, since other taxes are triggered or certain deductions are reduced as AGI gets higher.

Gifts to 501(c)(3) organizations such as Asbury Foundation are eligible for QCD treatment, but gifts to private foundations or donor advised funds are not.

The QCD is a great strategy since the new tax law has come into play. Of course, always discuss your specific situation with your financial advisor and CPA.

Rich Stang, CPA, is a founding partner of DeLeon and Stang, a firm of certified public accountants and advisors. Rich serves as vice chair of the Asbury Foundation, Inc., Board of Directors.