The Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law on December 22, 2017.
While there has been a range of reactions to the possible impact of TCJA on charitable giving, there is a lack of specific information to guide donors. This fact sheet will first outline several areas of charitable giving impacted by the law and not impacted by the law and then it will offer suggestions on how you can continue to make tax-efficient gifts to charity.
What TCJA changes and does not change
- TCJA does not change charitable tax law retroactive to calendar 2017. You may wish to keep this in mind as you prepare your 2017 income tax return.
- The 100-year-old charitable gift deduction remains intact for those who itemize. There was a move to include a “non-itemizer deduction” for those who make gifts but do not itemize. That effort was not included in the final legislation.
- The annual deductible ceiling for cash gifts was raised from 50% to 60% of adjusted gross income (AGI). The 30% AGI limit for gifts of appreciated property held long term remains at 30%. The carry-forward rules remain unchanged.
- Taxpayers may still make gifts to charity of appreciated stock held long term and not declare any of the capital gain on that stock while garnering an income tax deduction for the full fair market value of the stock.
- Personal exemptions have been eliminated and the standard deduction has doubled to $12,000 for singles and $24,000 for married couples filing jointly. This may result in many taxpayers no longer itemizing each year. While this may pose a challenge for charitable giving, the strategies outlined below may help donors who wish to continue and expand the impact of their giving.
- The Pease Limitation—that phased out the benefits of charitable deductions for higher income taxpayers—was repealed.
- Income tax brackets have been lowered, and many taxpayers may find they have increased discretionary income to give to charity.
- The rules for qualified charitable distributions (QCDs) do not change. Individuals at least 70½ years of age may still roll over gifts from their IRAs to charity directly.
- Estate tax exemptions levels have doubled up to $11.2 million for individuals and $22.4 million for couples. Wealthier individuals may find they have increased assets in their estate to give to charity.
- The rules for creating charitable gift annuities and charitable remainder trusts do not change. Generally, these plans provide lifetime income in exchange for a gift to charity.
How you can continue to make tax-efficient gifts to charity
- If you are 70½ or older, consider gifts from your IRA directly (known as a “QCD,” or “IRA Charitable Rollover”). The distributions count toward your annual required minimum distribution (RMD) but you do not pay tax on them as income, in effect, the same benefit as an income tax deduction.
- Make gifts of appreciated stock held long term and then repurchase the stock at a new, higher cost basis with the cash you otherwise would have donated.
- Consider gifting other non-cash appreciated assets such as real estate. You may still enjoy a full fair market income tax charitable deduction and avoid declaring any capital gain.
- You may find you have increased discretionary income to give to charity because you are in a lower tax bracket. If you pay off your balance each month, make your gift using a credit card that accrues points or other benefits.
- Gifts that pay you lifetime income in return (charitable annuities and charitable trusts) may generate a partial income tax deduction, save on capital gains tax, increase income from low-yielding assets and generate some tax-free income.
- If you may no longer itemize each year, consider bundling your gifts to itemize every other year. For example, gifts to Clarkson in January and December allow donor recognition for two fiscal years at Clarkson but one calendar year for income tax purposes.
- Gifts to your donor-advised fund allow you to generate an income tax deduction in one year and then request grants from the fund in subsequent years. New guidance from the IRS may now allow charities to book your pledge for gifts that will come from your donor-advised fund.
- You may wish to review your existing pledge agreements with your charities so you might bundle your pledge payments into years that you itemize. In addition, you may wish to consider which years you may itemize when you create new gift pledges.
- You may wish to review your estate plans in light of the increased estate tax exemption. Many individuals may find increased flexibility to plan larger gifts to charity. One option may be a testamentary charitable trust that makes payments to heirs with the remainder eventually going to charity.
- Heirs who inherit a retirement plan must pay income tax on distributions from the plan. You may want to plan gifts to charity from your retirement plan (charity pays no income tax on the gift) and then pass other, non-taxable, assets to heirs.
Everyone knows that we make gifts to Clarkson to support the transformational impact of a Clarkson education on the lives of its students. The new tax environment in 2018 will continue familiar ways and offer new opportunities for you to make your gifts in a tax-efficient manner. Contact us for help as you consider your charitable planning. You can call Bob Ahlfeld at 315-268-7978 or email firstname.lastname@example.org.
Read more about others who have planned gifts to Clarkson and for further information on philanthropy:
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 2/2018)