Charitable Giving Under the New Tax Law: How to Make Your Dollars Count

The Tax Cuts and Jobs Act, went into effect at the start of 2018, and while you may be aware of many significant changes, have you thought about its impact on your charitable giving schedule? Kroon & Mitchell dive into charitable giving in light of the new regulations, providing you, your friends, and family members with a way to continue your charitable contributions well into 2018 and beyond.

Charitable Contributions Before the Tax Cuts and Jobs Act

Kent County is known as a thriving philanthropic center with the Johnson Center stating, “both the county and the state of Michigan have long been recognized for their vibrant philanthropic identity, institutions, and innovations.” But since the new tax regulations have taken effect, the ability to give to your favorite non-profit may not be as easy as years past for some taxpayers.

While giving brings with it a natural satisfaction and “warm feeling”, tax benefits were always an additional perk. While this probably wasn’t your main motivation of course, the tax deduction for charitable contributions did help reduce your overall tax bill if you itemized instead of taking the standard deduction. But, under the new tax law, the standard deduction has nearly doubled, making it less likely taxpayers will itemize come April 2019. In other words, this additional tax benefit may not be available to most.

Charitable Giving Today

The deduction for donations hasn’t changed, and itemization is still required to claim the deduction, but since the bar for standard deductions is now much higher, there will be fewer people benefiting (from a tax perspective), therefore less likely to contribute in the first place.

Based on the new legislation, individuals would need their total itemized deductions to exceed $12,000 (the new standard deduction amount), up from $6,350. Married couples need itemized deductions exceeding $24,000, up from $12,700. Without itemized deductions, many people will lose the tax benefit associated with charitable giving, which may serve as a strong budgetary deterrent, unfortunately.

Charitable Giving For 2018 and the Next Seven Years

Going forward, the tax benefit could still be achieved with a different approach. For example, those aged 70 ½ and above can gift money directly to the charity from their IRA investment and avoid paying taxes on that withdraw. By redistributing funds from the IRA investment directly to the charity, you essentially save the money you would have paid in tax if you withdrew from the account for personal reasons. In fact, the money that you would’ve been required to pay the federal government in taxes could even be redirected to enhance your intended charitable contribution.

Historically, cash donations from an IRA account would be very cumbersome due to the many arduous administration hurdles. However, investment companies have now offered an opportunity to gift directly from their IRA, using a checkbook-like system that jumps over such impediments. The tax savings will vary based on the taxpayer but such qualified charitable distributions can be a beneficial way of meeting your required minimum distribution, without itemizing deductions to receive that advantage! In addition, taxability of social security could be affected based on your income level.

Maybe you are of retirement age and find true enjoyment in supporting charities that have always been important to you, but also appreciate the tax benefits reaped through regular giving. Maybe you aren’t quite there yet, but your parents or grandparents have historically supported several charities and would like to continue to do so. The experts at Kroon & Mitchell have a solution that may be just right for you.

Contact Kroon & Mitchell today if you’d like to learn more about how to maximize your charitable giving in light of the recent tax reforms. We would also be happy to visit your community center, senior center, church community, club, or association to discuss these recent changes and help your members continue giving to important non-profits and charities in the region, as they always have.

To gain additional insight into charitable giving, read our interview from the Grand Rapids Business Journal.

Don’t hesitate to contact us with any of your financial questions.

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