Charitable Giving and Tax Reform

The holiday season is a time for giving. The Tax Cuts and Jobs Act significantly increased the number of taxpayers that claim the standard deduction on their tax return as opposed to itemizing. Charitable organizations have claimed that this will result in fewer donations, and initial data from the first tax season under the new law supports that.

In a previous article (see “Year End Tax Tips” dated November 1, 2019) I identified bunching charitable contributions into one year to help gain the benefit of an income tax deduction. Here are some other ways to do that:

  • Donor-advised funds: With a donor-advised fund, you can make a large initial contribution this year and qualify for a healthy deduction. Then the donor-advised fund gives out money to your favorite charities over a period of time. This has the same practical effect as bunching.
  • Gifts of property: By giving capital gain property that has appreciated in value, like stock, art or other collectibles, you can generally deduct the property’s current fair market value, instead of its initial cost. Thus, you increase your deduction while avoiding paying tax on the appreciation in value.
  • Rollover from an Individual Retirement Account (IRA): A taxpayer age 70½ or older can roll over up to $100,000 directly from an IRA to a qualified charity with no income tax consequences. While you don’t qualify for a tax deduction, the distribution isn’t taxable either and the rollover can satisfy IRS minimum distribution requirements.

While charitable giving should be done for reasons in addition to income taxes if that increases a taxpayer’s desire to donate it is good for both sides involved.