Charitable Giving

What you need to know about the new tax code

Donating to charity is an admirable and worthy mission as we all seek to better the world in which we live. America ranks consistently at the top of the list as the most charitably inclined country. The United States’ tax code has been structured to provide potential benefits for those who decide to give and can qualify.

How has the new tax legislation potentially affected your ability to deduct donations?

The general rules around deductible donations have not changed. You will still need to itemize these deductions if you want to claim them. However, the standard deduction has increased substantially under the new Tax Cuts and Jobs Act which will significantly decrease the number of those who itemize. This means fewer people will be able to claim charitable deductions. Luckily, there are a few strategies you could use to maintain this tax benefit, even if the new laws have changed the way you file. As always, discuss these options with your tax professional regarding your personal situation before implementation.

One idea would be to group donations into one tax year, making the donation bigger so the deduction is large enough to claim. With this strategy you would give a lot in one year and none the next year, thus alternating between itemizing and taking the standard deduction. For instance, instead of giving $5,000 each year, donate $10,000 every other year. This may help obtain high enough itemized deductions the year you donate to claim the benefit.

If you are over the age of 70 and a half, there is another option to consider. Since individuals of this age are already required to take money out of their IRA each year (called a Required Minimum Distribution or RMD for short), you could donate directly to the charity out of your IRA. The donation would count towards satisfying the required amount that must be distributed from the IRA. Since you aren’t receiving the distribution you would not claim it as income. Therefore you would not be taxed on the portion of the distribution given to the charity, creating a way of helping organizations and meeting the guidelines for charitable deductions as well.

Other options are available to those who want to make much larger donations or give as part of a more involved estate plan. Those seeking to learn more about these types of strategies should contact a professional. A good financial advisor, certified public accountant, or attorney would be appropriate professionals to consult.

If you itemize and plan to give to charitable causes, try to donate those financial assets with the greatest appreciation (i.e. those that have grown the most) as this provides the largest tax benefit. You are able to claim the deduction on the total amount donated while avoiding the tax on the growth. Furthermore, the charity will not pay tax when they sell the asset as they are a nonprofit entity. The end result is a tax advantaged outcome at both ends of the transaction.

While the new tax code has made it tougher for many to claim the charitable deduction, these techniques may still preserve the benefit of philanthropic donations.   

Wells Fargo Advisors is not a legal or tax advisor. You should consult with your attorney, accountant and/or estate planner before taking any action.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC. and/or estate planner before taking any action.

Nicholas Sicina
About Nicholas Sicina 6 Articles
Nicholas Sicina, CFP® is a Financial Advisor with the Gerrish & Sicina Wealth Management Group of Wells Fargo Advisors, LLC, Member SIPC. Mr. Sicina’s office is located at 70 Main Street in Warrenton, Virginia. He holds quarterly informational workshops on investment strategy and financial planning matters. For more information please contact him at 540-347-0111.

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