With the Tax Cuts and Jobs Act in effect for 2018, many taxpayers will face changes in the benefits of charitable giving. Perhaps one of the most impactful changes for individuals is the increased standard deduction, now $24,000 for married couples filing jointly. This is nearly double the previous deduction of $12,700. This means that, in order to benefit from itemized deductions such as charitable contributions, taxpayers will have to surpass the larger standard deduction threshold.
Fortunately, there are planning techniques that can help taxpayers maximize the tax benefit of fulfilling their charitable goals under the new law. One such technique is grouping itemized deductions in alternating years. Under this technique, donors with time flexibility can group the giving of larger gifts with other itemized deductions in a certain year, thereby exceeding the standard deduction and realizing an increased tax benefit than if the gift(s) had been spread evenly over two or more years.
Additionally, it is always beneficial to consider the character of the assets being contributed. If a donor chooses to contribute appreciated stock, he or she can avoid capital gains tax on the appreciated value of the stock while claiming the full value of the asset as a charitable contribution. It is important to note that gifts of stock are deductible up to 30% of adjusted gross income in a single year, and the taxpayer has up to six years to use this deduction before it is lost. Gifts of cash are now deductible up to 60% of AGI in a single year, up from 50%.
While many important financial topics such as charitable giving are subject to changes under the new tax law, it is possible to stay ahead of the tax implications with the appropriate proactive planning.