The Road Home

Year-End Giving Important Tax Information

Since we are not tax experts, The Road Home is unsure how tax changes will affect year-end donations to nonprofits. A supporter has provided helpful information.

by James G. Graham, Principal, RSM US LLP

It has been about a year since Tax Reform was signed into law, but the impact on year-end tax planning and charitable giving is yet to be determined.  The new tax law made significant changes to itemized deductions effective in 2018.  Charitable donations and mortgage interest deductions were unaffected by Tax Reform for most taxpayers and are still tax deductible.  Other itemized deductions were either limited or eliminated, including a $10,000 deduction limit for state and local income/property taxes and the elimination of miscellaneous itemized deductions.  The standard deduction for those who do not have enough tax deductions to itemize almost doubled ($24,000 for a married couple filing jointly; $12,000 for single filers), so the limitation and/or elimination of certain itemized deductions means more taxpayers, especially married couples filing jointly, will now claim the standard deduction.

What does this mean for year-end tax planning and charitable giving?  For single individuals, especially those who own a home, they will likely be itemizing deductions since the combination of up to $10,000 of state and local income/property tax deductions plus a mortgage interest deduction will exceed the $12,000 standard deduction.  If that is the case, their charitable giving will directly lower their tax bill for 2018.  For married couples, the answer may be different since they are subject to the same $10,000 dollar limitation for state and local income/property tax deductions.  For most married couples, the combination of the $10,000 state and local income/property tax and mortgage interest deductions will not be enough to exceed the $24,000 standard deduction without charitable donations.  It may take $5,000 or more of charitable donations to exceed the standard deduction, which may be more than their desired charitable giving for the year.


Does that mean married couples should make no charitable donations for the year and just claim the standard deduction?  Not necessarily.  While the tax incentive for making charitable donations may be important, it is normally not the primary reason for supporting charities.  Rather, charitable giving is more about the desire to help others in need and the tax benefit is simply a “bonus” to the donor.  A tax planning strategy for those who have total itemized deductions that are close to the standard deduction is to consider doubling up or “bunching” charitable donations in one year to itemize deductions then claim the standard deduction in the next year.  A donor advised fund is becoming a popular funding vehicle to “bunch” charitable donations in one year that can be used to disburse donations to charities in the next year (the non-itemizing year).  This provides some tax benefit to donors in the itemizing year and continuity of donations to charities for both years.  For donors age 70 ½ or older who will not itemize deductions, consider making aQualified Charitable Distribution (QCD) from an IRA directly to charities.  QCD’s are tax-free withdrawals that can satisfy required minimum distributions and achieve a tax-free benefit similar to a tax deduction.

Tax Reform should be positive news to most taxpayers and lower their tax bills.  Charities may be concerned about the impact of Tax Reform on donations, but will hopefully be unaffected as donors continue to share their wealth and provide support with or without the charitable tax deduction.