How 2018 Tax Law Changes Affect Charitable Gifting

How 2018 Tax Law Changes Affect Charitable Gifting

by St. John & Assoc on Jul 6, 2018

gifting, charitable giving, charitable gifting, 2018 tax law changes, tax law changes, deduction amount, qualified charitable distribution, required minimum distribution, earned income, IRA to ROTH, tax free contribution

Many taxpayers may not yet understand that the 2018 tax regulation changes include an increase in both the standard deduction amount to $24,000 for joint returns, and $12,000 for single returns. These amounts may exceed the amount of itemized deductions for most taxpayers, which can include their medical expenses, interest expenses, charitable contributions, and other taxes. This in part is a result of deductions being made more restrictive and some deductions being eliminated. We estimate that 80% of taxpayers will file for standard deductions, as they will be in excess of their itemized deductions.

 

This, and the broadening and lowering of the tax brackets, may result in taxpayers rethinking or modifying expenses they previously incurred which provided them tax deductions. This could result in paying off mortgages, or aggregating charitable contributions to an every other year basis.

 

For taxpayers who are charitably inclined and are 70 ½ or older, there exists the opportunity to make charitable contribution, through a Qualified Charitable Distribution (QCD) as part of their IRA’s RMD (Required Minimum Distribution.) As such, any QCD amount reduces the adjusted gross income (on a dollar for dollar basis) in addition to still being eligible for the standard deduction amount.  Reference line 15a on form 1040 (IRA distributions.)

 

To avoid having to file quarterly tax returns, tax withholding may be made from IRA accounts whether or not any other distribution is through a QCD. Such withholding from IRA accounts is credited as earned income for tax purposes and not subject to penalty for untimely payments.

 

For those not subject to RMD requirements, the most tax effective way to contribute to charities is by gifting appreciated assets from a taxable account, subject to your filing for standard or itemized deductions.

 

The other gifting strategy may be to convert IRA funds to a Roth account in any year in which the taxpayer’s taxable income puts them in a lower than usual tax bracket, after which these charitable contributions can be made on a tax-free basis.

  • By Richard St. John, Founder & President