Last week, I examined the dire warnings about a looming drop in charitable giving thanks to recent changes in federal tax law. Now, let’s turn to several provisions of the tax bill that are very positive for charitable giving.
First, the law keeps intact the ability to make Qualified Charitable Distributions, or QCDs, directly from your IRA up to $100,000 each year. If you are 70 1/2 or older and have Required Minimum Distributions, or RMDs, that you must take from your IRA, making a QCD from your IRA to your favorite charity is a tax-wise way to make a gift.
Distributions of up to $100,000 may be made each year and count toward your RMD, but it will not be recognized as income on your tax return as long as the distribution goes directly from your IRA’s custodian to the charity.
We have a number of people who add to their scholarship or designated funds at the Community Foundation using this tool. Unfortunately, it appears that the new tax law still does not allow a QCD to donor-advised funds, but there’s enough debate on this point that it bears monitoring.
Second, taxpayers who itemize may now deduct up to 60 percent of their adjusted gross income each year, an increase from 50 percent. If they cannot deduct the full amount in the year of the gift, the balance can still be carried forward for five years.
The deduction on appreciated assets, such as stocks, remained at 30 percent.
More good news for itemizers, even if those numbers are going to dwindle: The Pease limitations, which reduced the itemized deductions of higher-income earners, have been repealed. Those higher-income charitable givers are not taking a haircut on their deductions as they did under previous tax law.
We do anticipate that some of our donors who have a donor-advised fund at the Community Foundation may bunch their gifts, putting a larger amount into their fund in one year so they can itemize their charitable gift and then makes grants out of their fund to their favorite charities over several years.
In other words, they may “bunch their charitable giving” into one year to receive a more favorable tax benefit.
The stock market being at a record high is also positive for charitable giving. A donation of appreciated securities continues to be one of the most tax-advantaged ways to give.
By transferring the securities to a charity, you avoid the capital gain and also get the charitable deduction for the contribution. Stocks in your portfolio with the largest capital gain are the best to donate.
While my crystal isn’t always correct, I predicted in an earlier column that the estate tax would be repealed and it was not. However, the estate tax for a married couple is no longer a factor for estates less than $22.36 million, up from $10.98 million, so fewer households will be impacted.
I remain optimistic about charitable giving in 2018 under the new tax law. The Giving USA study on charitable giving in 2018 will be published in July 2019, so I guess I’ll have to wait until then to find out if my gut and logic are correct.
Only time will tell.
This is the second in a two-part series exploring how tax-law changes might impact charitable giving. Part one was published Feb. 2. To reach columnist Phil Hanson, the president and CEO of Truman Heartland Community Foundation, send email to firstname.lastname@example.org or call (816) 912-4181.