Charitable Gifts under the 2018 Tax Act

Wednesday, November 7, 2018

Charitable Gifts under the 2018 Tax Act

It’s November and the final quarter of 2018 is underway. The approach of December 31st signals not just the coming of New Year’s Eve but the deadline for charitable contributions for the current year.

The 2018 Tax Act has made some significant changes to the charitable gift landscape that you should be aware of. What has changed? Very simply, the standard deduction for a married couple has been increased from $13,000 to $24,000 for 2018. To deduct charitable gifts you need to be able to itemize your deductions and the increased standard deduction has taken that option away for many of our clients.

What are your options to get the best tax result from your charitable gifts? There are three charitable gift strategies that can still provide some tax benefit even if you will be unable to itemize deductions under the new law.

First is the existing provision that allows you to make charitable distributions directly from your IRA to charity. If you are 70 ½ and required to take minimum annual distributions, you can make a direct transfer to one or more charities from your IRA of up to $100,000 each year. While not a tax deduction, these distributions of what would normally be ordinary income given to charity are not taxable to you creating a tax free IRA withdrawal to make your charitable gifts.

A second strategy that has also been around for a long time is making charitable gifts of appreciated assets. This used to be like double dipping in that you received a tax deduction for the charitable gift of the full value of the asset gifted as well as not recognizing any gain on the transfer to charity. While the direct charitable deduction may have been lost, not paying capital gains taxes is still a benefit and certainly preferable to just writing a check for larger charitable donations.

A final option especially if you are close to hitting the standard deduction is what is being called “bunching”. Looking at all of your normal charitable gifts for a given year and doing both this year’s gifts and next year’s gifts “bunched” in one calendar year. For example making all of your 2018 and 2019 gifts in December of 2018 and then skipping 2019. You of course need to do the math, but if doubling up allows you to deduct this year you can then skip the following year and repeat. A plea from various charities that I work with is that you let them know this is your pledge or gift is for both years so that they can budget accordingly.

It has always been my experience that charitable giving is not primarily driven by a tax deduction. However getting the best result for the charities you support by taking advantage of what the tax code allows is always smart financial planning. Please feel free to let me or any of the team at First Merchants Private Wealth Advisors know if you have any questions or if there is anything we can do to help you pursue a secure and rewarding financial future.


David Forbes, Director, Trust Administration

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