The New Tax Law & Your Charitable Giving
Alumni, parents and friends of Regis make generous gifts each year because they are inspired to preserve the school’s unique mission. Nonetheless, taxes are a consideration when it comes to giving. The December passage of the Tax Cuts and Jobs Act has prompted the question: how will the new tax law impact the tax status of my charitable giving? Here are some points to keep in mind.
Change in Deductions
- The deduction for charitable giving is unchanged. However, the clause limiting total charitable gifts to 50% of a filer’s Adjusted Gross Income has been raised to 60%. The limit for gifts of appreciated securities remains 30% of AGI.
- The deduction for state & local income and property taxes is limited to $10,000 per return.
- Current mortgages are grandfathered; but the deduction for mortgage interest on new home loans is limited to a total of $750,000 in mortgage debt
- The Standard Deduction has nearly doubled, to $12,000 for single filers and $24,000 for couples filing jointly. For individuals and couples over 65, the deductions are $13,600 and $26,600
Taxpayers whose itemized deductions still exceed $24,000 will see the deductibility of their charitable giving unaffected by these changes (some may benefit from the increase in AGI limitations for charitable gifts). But those whose deductions total below $24,000 won’t incur a specific tax benefit for giving to charity in 2018.
What to Do
Tax planners recommend several strategies for those who fall short of the $24,000 threshold:
- “Bunch” donations every few years to exceed the standard deduction. A couple with $10,000 in state taxes, no mortgage interest and $10,000 in charitable gifts will only have $20,000 in itemized deductions. If that couple donates $20,000 every other year, they will have $30,000 in total itemized deductions in those years; while still taking the standard deduction in years where they don’t give and only have $10,000 in itemized deductions.
- Consider opening a donor advised fund. Offered by brokerages such as Fidelity, Schwab, and Vanguard, they permit donors to contribute outsized donations in a given tax year that generate a large deduction. The gifts to charity can then be made over time, in the manner of a personal foundation.
- If you are over 70.5 years of age, make your gift to Regis from your IRA. You can make distributions totaling up to $100,000 each year directly from your IRA to qualifying charities without including the amounts in your Adjusted Gross Income; and the distributions count toward meeting your Required Minimum Distribution for the tax year.
Of the $1.4 million in 2017 Annual Fund Gifts made by alumni 70.5 or older, $400,000 came from IRA Charitable Distributions.
- Make a Gift of Appreciated Securities. Transferring appreciated shares to Regis unlocks the full value of the shares on behalf of the school, and you pay no long term capital gains tax. The new tax legislation has maintained a top capital gains rate of 23.8%.
Of the $8.5 million in 2017 Annual Fund Gifts, Regis received $1.1 million from appreciated securities.
Estate & Gift Tax
The individual estate & gift tax exemption doubled to $11.2 million and the exemption for couples to $22.4 million. Charitable bequests remain exempt.
Another important clause was not changed: regardless of your estate’s size, all traditional IRA’s funded with pretax dollars are fully taxable to your heirs.
In reviewing your estate plan, it is almost always a smart choice to make as many of your charitable bequests as possible from your IRA, leaving your other, tax exempt assets to your heirs.
Estate gifts from your IRA can be designated via a change in IRA beneficiaries that you make with your IRA custodian. There is no need to re-draft your will.