With the most significant tax reform in decades (The Tax Cuts and Jobs Act of 2017) in effect as of January 1st, you may be wondering what the implications of the new law are for you. Like most of the givers we serve, we know that your giving is motivated by much more than tax incentives. But you also believe that it’s important to be wise with the resources that God has entrusted to you.
That’s where NCF can help.
Our charitable giving team has thoroughly researched the new tax law, and we have a few suggestions to help you and your tax advisors as you consider how to give most effectively.
Now, the standard deduction for U.S. individual income taxpayers has increased to $24,000 for a married couple filing jointly, $18,000 for head of household, and $12,000 for individuals. As a result, many taxpayers will no longer itemize deductions on an annual basis. If you are one of them, you may be saving more money in taxes and, therefore, be in a stronger financial position to give.
So here are three key strategies for givers to consider in taking the standard deduction:
1. Front-load your giving
This helps by capturing deduction benefits every few years.
The new tax law increased the charitable deductions allowed for cash gifts to charity from 50% to 60% of your Adjusted Gross Income (AGI). So the 60% deduction limit allows a larger deductible gift to be “front-loaded” into your NCF Giving Fund in one year, and then you can recommend grants to charity over the following years.
NCF’s Vice President of Gift Planning Solutions, Michael King, explains, “If a giver has the flexibility or is anticipating a big tax event, he or she should consider using an NCF Giving Fund to front-load giving into one year for a sizeable deduction, itemizing in that year, then claiming the increased standard deduction in the following years.”
However, one thing to keep in mind is that non-cash gifts will reduce the 60% threshold back down to 50%. In other words, if you give 10% or more of your charitable contributions in non-cash assets, then the additional 50% to 60% threshold is eliminated.
2. Focus on non-cash appreciated assets
This helps by eliminating capital gains tax.
While gifts of appreciated assets have always been a wise way to give, the new law makes these types of gifts even more attractive. Giving appreciated assets held for more than one year, such as publicly traded stocks, allows you to receive a charitable tax deduction for the full value of the asset and eliminate capital gains taxes.
“Even if a giver might not claim or receive a charitable deduction, he or she can still capture tax benefits by giving appreciated assets prior to a sale, and thereby avoid the capital gain tax," says NCF’s Jeanne McMains, Vice President of Gift Planning Solutions.
3. Choose a Charitable IRA Rollover
This helps by avoiding inclusion of required minimum distributions in income.
The Charitable IRA Rollover (also known as a Qualified Charitable Distribution, or QCD) is still available for givers who are subject to a required minimum distribution, but now it will be even more enticing to givers who are age 70 and ½. If you qualify for this, you can opt to distribute up to $100,000 annually from your IRA directly to charity and have the distribution count towards your required minimum distribution. The qualified charitable deduction is reported as non-taxable income on your federal tax return.
So, if a giver is no longer capturing charitable deduction benefits, he or she can nonetheless capture some tax benefits by avoiding income otherwise needed to be reported as taxable. The Charitable IRA Rollover never provided a charitable deduction; the benefit has always been to avoid income tax recognition. If you are age 70 and ½ or older and no longer itemize, your IRA and other qualified retirement assets (after converting to an IRA) may now be the number one place you should look to as the source of all of your charitable giving.
NCF is uniquely poised to facilitate this strategy, as we offer designated funds that can accept qualified charitable deductions, whereas donor-advised funds and supporting organizations cannot.
Start planning now
While your reason for giving may not have changed, under the new law the tax implications of your giving have shifted significantly. If you won’t be itemizing on an annual basis, our team would love to talk to you about these three strategies to help you save taxes and make the most of your giving this year.