People continue to sort out implications of the new tax law. What are the opportunities and challenges particularly as it relates to charitable giving?
1) The law allows for people to give up to 60 percent of their adjusted gross income. If you make $100,000, you can give $60,000 and deduct the entire amount. While many may not see this as an opportunity, it will provide a unique opportunity for major donors who are seeking to increase their giving.
2) The new tax law lowers the corporate tax rate from 38 percent to 21 percent. That 17 percent drop means more profits but also more opportunity to give. Whereas some corporations might have felt challenged to give in the past, the lower tax rate gives them that margin.
3) The new tax law kept in place the 30 percent deduction of capital assets. So people can still deduct non-cash assets like real estate and even closely help business interests to maximize their income tax deductions. This non-cash deduction should be read in light of the challenge below.
The challenge to the new tax law is that it raised the standard deduction for individuals to $12,000 and $24,000 for married couples. In addition, the SALT (state and local income tax) deduction was capped at $10,000. So for many, the standard deduction and SALT cap may prove a hurdle difficult to overcome. In other words, even with their giving and other deductions they may not be over the standard deduction.
How to address the challenge? First consider using capital assets to raise your charitable giving—whether it is the donation of a car, collectible, real estate or even a business interest, the inclusion of a capital asset may propel deductions over the standard deduction.
Alternatively, people can “bunch” their charitable giving. One family who gives $10,000 a year told me that they doubled their giving to $20,000. They put the $20,000 into a donor advised fund, and with the other deductions they had, they rose above the $24,000 standard deduction. However, they’ll give $10,000 in calendar year 2018, and the remaining $10,000 in calendar year 2019, from their donor advised fund. They’ll plan to use the same “bunching” strategy in 2020.
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