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What the New Standard Deduction Means for Charitable Giving – and You

Mark J. Smith, CFP®, CPA/PFS, CIMA®
December 21, 2018

The end of each year always brings a big push from nonprofit organizations for donations. In the past, a donation was an automatic win-win: nonprofits received much-needed funding while donors received the reward of helping others – along with a nice tax benefit if they itemized rather than taking the standard deduction.


This year, however, things are different. The Tax Cuts and Jobs Act, passed in December 2017, doubled the standard deduction, making it harder to claim the tax deduction for charitable contributions.


Under the TCJA, you can only claim itemized deductions, including write-offs for charitable giving, when the amount exceeds the standard deduction which is now $12,000 for single filers and $24,000 for married couples filing jointly.


A congressional report predicts that as a result of the changes, 18 million households will itemize deductions this year, down from 46.5 million last year. Without itemized deductions, most people will lose all tax benefits associated with charitable giving.

Potentially millions of dollars lost


The Tax Policy Center estimates that in Colorado, charitable giving will drop 6.5 percent which equates to a $250 million reduction in funds going to nonprofit organizations. It’s a number that makes nonprofits nervous. While organizations know donors aren’t solely motivated by tax incentives, surveys show that tax benefits for giving are an important factor in donations, particularly for some groups.

Consider these four strategies

As you wrap up your year-end giving plans, here are some strategies to allow you to continue to support the causes most important to you while maximizing your tax benefits.

  1. Bunching. Rather than giving every year, you can give a greater amount every other year. Consider a married couple who has $18,000 in deductible expenses, which include $4,000 a year in charitable donations. Under the new tax law, they would be better off claiming the $24,000 standard deduction. But by making an $8,000 gift every two years, raising their deductions to $26,000, they could get a write-off and still give the same amount.
  2. Donor advised fund (DAF). If you prefer to make annual gifts, consider a donor-advised fund, which allows you to bunch and make frequent donations. Your entire contribution is deductible in the year you give, and you can spread out your donations to charities you choose in future years. You can even set up your own DAF – it’s not hard to do.
  3. Donate appreciated assets. Give stocks or other appreciated assets, such as artwork and antiques, which have grown in value.
  4. Give a portion of your IRA withdrawals. One of the biggest tax breaks on giving is one the new law didn't touch: the so-called Qualified Charitable Distribution (QCD), which provides tax benefits to older Americans who give to charity through withdrawals from their traditional IRAs.

Options for a Colorado income tax credit

Colorado residents are in a unique position regarding the tax benefits of certain charitable gifts. While most qualified charitable gifts made will entitle the donor to a federal and state tax deduction (assuming the taxpayer itemizes), certain gifts made to qualifying Colorado Child Care and Enterprise Zone Programs entitle taxpayers to a Colorado income tax credit of 50% and 25%, respectfully.


A tax credit is far superior to a tax deduction. The tax benefit of a tax deduction is the contribution amount times your marginal tax rate. But the tax benefit of a credit is that it is a dollar for dollar reduction in the tax.


And of course, you can always continue give to charities without getting the tax break. It is our observation that Coloradans have been, and always will be, a generous group who want to support their causes regardless of whether it reduces their taxes or not.


The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. While we are familiar with the tax provisions of the issues presented at this seminar, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.



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