Thoughtful Charitable Planning Can Maximize Tax Savings Under the TCJA

The amount you donate to charity can make an impact on the organizations you support while providing relief from federal income tax. Now that we have had a full year to review the impact of the Tax Cuts and Jobs Act (TCJA), charitable giving can still play a key role in your tax planning.

The TCJA continues to provide tax benefits for charitable giving for those taxpayers who are able to itemize their deductions. In fact, charitable contributions are one of the few deductions that were enhanced under the Act, which increased the AGI limitation on cash contributions from 50% to 60%. The 30% limitation on contributions of appreciated assets still applies and contributions exceeding the limits may be carried over for up to five years. 

Further enhancing the charitable deduction is the suspension of the overall limitation that reduced total itemized deductions based on AGI thresholds. You will now receive the full benefit of your allowable charitable deduction without an additional reduction. These provisions will sunset after Dec. 31, 2025.

Under the Act, the standard deduction was increased in 2019 to $12,200 (filing single) and $24,400 (filing joint). For some taxpayers, normal charitable giving, coupled with other deductions such as mortgage interest or state and local income tax and property tax will not be enough to itemize. Using bunching strategies to combine several years of donations in one year by using a Donor Advised Fund, such as the Catholic Community Foundation DAF (as discussed in the last issue of Gratias Agere) can create a large itemized deduction in the same year while allowing you to maximize the tax savings of the enhanced standard deductions in the years you are not donating.

Donor Advised Funds are also a great vehicle for giving in a year where you have an income event that raises your tax bracket. By front loading a DAF donation in the high income year, you can offset more income that would otherwise be taxed at a higher bracket.

If you are age 70 ½ or older during the tax year, and have required minimum distributions from a traditional IRA, you can take advantage of a Qualified Charitable Distribution (QCD). Each year, you can make a distribution from your IRA of up to $100,000 directly to qualified charities. In lieu of claiming a charitable itemized deduction for the donation, the QCD will directly reduce the amount of the taxable IRA distribution. The QCD can also be used to satisfy an IRA owner’s required minimum distribution. If you live in a taxing state such as Ohio, the QCD reduces taxable AGI, thus reducing state tax as well!

There are many charitable vehicles available to help accomplish your charitable giving goals in a tax efficient manner. Through careful planning with your tax advisor, you can continue to support your favorite charities while saving tax. 

Contact us if you have questions.