As a result of the Tax Cuts and Jobs Act (TCJA) of 2017, many taxpayers may not itemize deductions in the future. Therefore, the benefit of deductions of smaller charitable donations you may have had in the past, could end up being eliminated under the new rules with the doubling of the standard deduction and removal of many other itemized deductions.
A new strategy for married, charitably-inclined couples could be to “bunch” donations every few years to maximize their charitable deduction benefit when they are able to sufficiently surpass the new standard deduction limit. Donor advised funds, charitable trusts, and other tools could be considered to facilitate the bunching of charitable gifts to receive a higher deduction in a specific tax year while distributing the assets to their charities of choice at later dates.
An alternative strategy if you are over 70 ½ and already taking Required Minimum Distributions (RMDs) from your IRA, is to make a Qualified Charitable Distribution (QCD). Taxpayers that do not itemize deductions in 2018 may especially benefit by making QCDs, as they would not otherwise receive any marginal tax benefit from their charitable contributions. IRA owners can give any amount up to $100,000 per year from their IRAs as a QCD, and the contributions to charity are excluded from income. Normally any IRA withdrawal (including RMDs) is taxed as ordinary income. However, when the QCD is donated directly to a charity from the IRA custodian, that amount is removed from taxable income.
So, if you are over 70 ½ and give annually to charity in smaller amounts and do not plan on itemizing deductions in 2018 – a QCD from your IRA may be the ideal option for you. Given this fact, it may be worth postponing your annual giving until you have the chance to assess the ideal personal planning scenario with your tax preparer.
If you have questions regarding your personal tax situation, speak with one of our investment advisors by calling (858) 509-9500 or by submiting a contact form.