With the giving season approaching and the 2018 tax year nearing its close, charitably minded people will have to get more creative with their giving strategies in order to reap tax benefits under the sweeping federal tax package that took hold at the start of the year.
The 1,000-plus-page Tax Cuts and Jobs Act that President Donald Trump signed into law late in 2017 is a mixed bag for the charitably inclined. On one hand, it expands the deductible amount for charitable contributions from 50 percent up to 60 percent of adjusted gross income. But on the other, it increases the standard deduction to $12,000 for individuals, $18,000 for heads of household and $24,000 for married couples filing jointly. Taxpayers may claim the greater of the standard deduction or the total of their itemized deductions. A higher standard deduction means people will be less likely to itemize their deductions. As a result, fewer people are likely to take advantage of the increase in charitable deductibility, because their deductions in a given tax year won’t amount to enough to justify itemizing their deductions.
“In the past, it was estimated that one-third of taxpayers would itemize [deductions on their federal tax returns]” says FPA member Thomas F. Scanlon, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and Certified Public Accountant based in Manchester, Conn. “With these [tax policy] changes, it is estimated that only 10 percent of taxpayers will itemize. This has many charities worried.” Their chief concern is that the Trump tax law will discourage people from providing financial support to their favorite causes and organizations.
While it’s too soon to ascertain whether those fears will be realized, one thing about the new policy is certain, say tax and financial experts: It will change the dynamics around charitable giving. How, then, to fulfill charitable giving aspirations and reap tax benefits from doing so? Here are five approaches that finance and tax professionals suggest people explore: