One-third of all annual giving in the United States happens in December, so if you’re like many givers, now is when you’re making 2018’s most significant charitable contributions. But with new tax code changes in effect this year, take a moment to first read up on the most up-to-date information before making your year-end giving decisions.
Charitable Deduction Changes
Contrary to some beliefs, the 2017 tax law changes didn’t wipe out charitable deductions. Instead, the 2017 tax law increased the standard deduction to $12,000 for a single taxpayer (from $6,500) or approximately $24,000 for a married couple (from $12,700). This means that fewer people will itemize their deductions, opting instead for the standard deduction.
For those taxpayers who itemize because their deductions exceed the standard deduction, charitable deductions are still an important part of annual tax planning.
“Bundling” or “Bunching” Deductions
If you don’t have enough deductions to itemize, you may want to consider a practice called “bundling” or “bunching,” in which you combine your charitable gifts in some years, so that you can itemize in those years. A Donor Advised Fund at the Jewish Federation can be helpful here. For example, let’s say a couple — we’ll call them the Goldsteins — normally give about $15,000 worth of charitable gifts each year, but because of the new standard deduction, the Goldsteins are considering making fewer or smaller charitable gifts. The Goldsteins could instead establish a new Donor Advised Fund with a larger gift (say, $40,000), itemize the deduction, then use the dollars in their new “Goldstein Fund” over several years to make charitable gifts of their choosing.
The IRA Charitable Rollover
If you’re over the of age 70 ½, your taxable IRA may double as an important charitable giving tool. The IRA Charitable Rollover allows you to direct your required minimum distribution (RMD) to charity without paying income tax on that distribution. You can transfer up to $100,000 per year directly from an IRA to a charity like the Jewish Federation. Since you don’t report this contribution as income, you won’t receive a charitable deduction for your gift. For non-itemizers, this may be an effective way to decrease your taxable income through charitable giving. And while you can’t use the IRA rollover to fund a Donor Advised Fund or Charitable Gift Annuity, you can use an IRA rollover to make annual, capital or permanent fund gifts.
“This year we’ve already seen several people fund endowment commitments using their IRA,” says Rachel Gross, Director of Planned Giving and Endowments at the Jewish Federation of Greater Philadelphia. “If you don’t need to use all of your RMD, you could begin to create your personal legacy now, by establishing a fund for a cause that’s most important to you.” Each year, she adds, you can direct money from your RMD to that fund, and watch your legacy grow and grow.
For more information on making a charitable gift using your IRA, or questions about creating an endowment or a donor advised fund, please contact Rachel Gross at firstname.lastname@example.org or 215.832.0572.
This article is for informational purposes only. Jewish Federation does not provide legal or tax advice. Please consult with your tax or other financial professionals.