The Tax Cuts and Jobs Act of 2017 has caused us to step back and revisit what has historically been the best practices for charitable giving. In years past, most donations were typically after-tax cash, highly appreciated securities, or a Qualified Charitable Distribution (QCD) from an IRA. In fact, deciding between the three was a somewhat closer call. Although opportunities to make tax efficient contributions still exist, doing it the old-fashioned way may no longer make the most sense. Going forward, we recommend considering the following strategies.
Due to the increased standard deduction, many taxpayers who previously itemized deductions are likely to discover that in many cases, a charitable gift will no longer provide a deduction. Certainly, the majority of donors still want to help their community, but it is prudent, when available, to also receive a tax benefit. If you will no longer be itemizing, it might be best to bunch multiple years of gifting into a single year. For example, if you typically contribute $10,000 per year to nonprofits, consider three year’s worth (or more) at one time, thereby creating the opportunity at least every three years to itemize.
What happens if you don’t want to give the charity three years of gifts all at once? The most efficient way to address this issue is through the use of Donor Advised Funds. With a donor advised fund, you can make the contribution all at once and receive the deduction in that year. However, although you have given the money away, you control how, when and to whom you make the gifts. To get even more bang for your buck, you can gift highly appreciated securities to the fund. Donor Advised Funds can be found in most local communities or through major financial institutions such as Fidelity or Charles Schwab. They are easy to use, and the money can stay there indefinitely and even be invested like a 401(k) plan.
Finally, for those over 70 1/2 years old, we would strongly consider the Qualified Charitable Distribution (QCD). A QCD allows the IRA account owner to gift directly to a qualified charity. Any funds contributed via a QCD may be excluded from taxable income, thereby lowering taxable income. The QCD is especially effective for those who are not itemizing. The maximum annual gift allowed by a QCD is $100,000; any gifts made in excess of the current year RMD do not carry forward to offset future RMDs. Gifts must be completed by December 31. To simplify this gifting process, IRA check writing is available.
Gifting strategies have definitely changed. It is critical to consider the best course of action going forward. The team at NNP is ready to work with you and your tax advisor to assess the next step; give us a call!
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