by Michelle Brawner
Do you consistently donate to charities? If so, you should review the different charitable giving options to ensure you maximize your tax deduction.
The Tax Cuts and Jobs Act of 2017 (TCJA) revised the tax code, increasing the standard deduction and eliminating many itemized deductions, but keeping the charitable contribution deduction. This means that many more taxpayers will take the standard deduction. However, there are still a few alternatives, outlined below, to maximize the tax benefit for your charitable donation, even if you do not itemize your deductions.
A donor-advised fund (DAF) is an account where taxpayers can pre-fund a number of years of charitable giving. Once the fund has been established, the donor can make contributions to charities out of the fund’s assets at any time. By front-loading several years of charitable donations to a DAF, taxpayers may alternate between itemized deductions and the standard deduction in future years to maximize their tax savings, while maintaining the freedom to make charitable gifts over time. For instance, if a taxpayer who normally has charitable donations of $10,000 per year, donates $30,000 into the DAF in year 1, they would itemize their deductions in year 1 and likely take the standard deduction in years 2 and 3.
Qualified Charitable Distributions
If you have required minimum distributions (RMD) from an IRA, a qualified charitable distribution (QCD) may be a preferred way to reduce your taxable income. The QCD is a direct payment of required minimum distributions from an IRA to a qualified non-profit organization. The QCD will satisfy all or part of your RMD as well as reduce your taxable income. This option is extremely beneficial when your total itemized deductions, including your charitable donations, do not exceed the amount of the standard deduction. The maximum QCD amount is $100,000 and must be directly distributed from your IRA to the non-profit organization.
Reviewing your charitable giving and the related tax benefits is even more important given the new tax law, not only for 2018, but for future years. Snyder Cohn is always available to help explore your options to maximize your tax benefits.