A donor’s guide to the new law and how it affects charitable giving.
- Reviewing the changes to the law from the lens of tax-efficient giving, it’s clear that the 2017 Tax Cuts and Jobs Act created some philanthropic winners and losers for the next few years.
- With the elimination of the phase-out of itemized deductions, donors who itemize can take advantage of the full amount of their charitable gifts, subject to AGI limits.
- For donors who can no longer itemize, there are several good strategies to mitigate the loss of the deduction, including the use of IRAs, donor advised funds, and gifts of appreciated property.
The 2017 Tax Cuts and Jobs Act (the Act) created dramatic changes for taxpayers, and many charitable donors are wondering whether from a tax perspective they will still be able to “do well by doing good.” There are many reasons for giving to charity, but ultimately giving is driven by your passion for the causes and the institutions you support. But like many donors, you also hope to make tax-efficient gifts, allowing you to save taxes and in some cases to give more to charity. For some donors the tax consequences of charitable giving won’t change or will even be enhanced by the new law, but other donors are wondering whether their charitable gifts will continue to be deductible for federal income tax purposes. And charities are worried that charitable giving will decline if donors lose tax advantages. This article will attempt to demystify the federal income and estate tax law changes that impact charitable giving and show how many donors can continue to find ways to make tax-efficient gifts. This article does not address state income and estate tax consequences of charitable giving, but it should be noted that in some cases state taxes will also be impacted by the federal tax law changes.
2018 tax landscape for philanthropic donors
Philanthropy is fundamentally about supporting charity, not tax efficiency. Donors across the country at all income and wealth levels are generous givers. According to Giving USA, in 2017 charitable giving nationally increased from $390 billion to $410 billion, and most of that represents giving by individuals.In fact, it is estimated that even before the recent tax law changes, almost 75% of taxpayers did not itemize deductions and thus received no tax benefit from any charitable gifts they made. But at higher income and wealth levels, donors have typically been able to take advantage of tax incentives for giving.
Tax-efficient giving is a function of many factors: your adjusted gross income; the amount of your charitable gifts; the kind of asset you give; the charity you give it to; your tax rate; and your other deductions. Reviewing the changes to the law from the lens of tax-efficient giving, it’s clear that the Act created some philanthropic winners and losers for the next few years. Note that most of the provisions of the Act that relate to individuals expire after 2025, and unless Congress acts, the law will revert to pre-2018 law.
Please see important disclosures at the end of the article.