On January 1 of this year, the Tax Cuts and Jobs Act (TCJA) went into effect. I haven’t talked to a non-accountant-type person yet who understands what these changes mean to the Average Joe, but, in my line of work, I had to learn about a few particular changes.
 
I need to stop right here and now and explain that I am not a CPA, nor an accountant. Anything you glean from this piece should serve as conversational fodder between you and your tax professional. There… Now that I’ve gotten that important statement out of the way, let’s move on.
 
If you read my column, you know that I’m charitably inclined. I give my dollars, but I also give my time, which means that I’m personally invested in several organizations in town. And because of this, I know how much they depend on your/our donations each year.

What does this have to do with the TCJA?

Plenty. One of the big changes of the TCJA is that the standard income tax deduction has changed dramatically to $12,000 for a single person and $24,000 for a married couple who files jointly. In other words, the first $12,000 a single person makes is essentially not taxed because it’s deducted from that person’s income. Also with the TCJA, the personal exemption is gone. In addition to that, the new cap for state and local tax deductions is $10,000.
 
What does this mean for charities who depend on tax-deductible contributions from individuals?

The Urban-Brookings Tax Policy Center says that nearly 28 percent of taxpayers (49 million) itemize their deductions, meaning their total actual deductions equal an amount greater than the standard deduction outlined in the above paragraph. Drill that down to 37 million taxpayers who typically itemize their charitable deductions. This year, however, the Tax Policy Center predicts that charitable deduction number will drop to about 16 million. Yikes! That’s a potential gut-punch loss in contributions to charities. At the same time, the new law will reduce the federal income tax subsidy for charitable giving by one-third, from about $63 billion to roughly $42 billion (Forbes, January 11, 2018).

This translates to a seven-percent increase in the after-tax cost of donating. That’s a lot of numbers and percentages. Suffice it to say, while the TCJA makes the average taxpayer smile, the charities who depend on our generosity are nervous. The attraction of a tax-deductible contribution is not going to automatically “shine” as it has in the past.
 
So what can the practical & charitably-inclined still do to make the new law work for them and the organization(s) they support? 

​First and foremost, I believe that giving of ourselves and our dollars benefits us as individuals every bit as much as it does the recipient organization; it betters our communities and our futures. So give, regardless of the tax benefit. Beyond that, here are a couple of strategies that might suit you.

• “Bunching" may get a taxpayer over the standard deduction threshold. This is a simple strategy. You simply “bunch” two years’ worth (or more) of contributions into one year. If you typically give $4,000 to charity per year, give double if that gets you over the standard deduction hump, then take the standard deduction the next year. The organization still benefits from your generosity, and you benefit from the giving (at least every other year). The obvious drawback: the taxpayer must have the ability to double the donation every other year.

 

• Donate Required Minimum Distributions (RMDs) to your favorite charity. RMDs are the amount the IRS requires us to take from our IRAs each year after we reach age seventy and a half. Many of my clients tell me they don’t actually “need” that money for income and they take it only because it’s required. In the past, my conversation would have involved donating that extra money for the tax deduction, because an RMD counts as earned income. With the TCJA changes, a new strategy may include donating those RMDs directly to a charity, thus reducing your taxable income by the amount of the donation. It’s not a tax deduction, but a reduction in income, which serves the same purpose for your bottom dollar. You can donate all or part of the RMD, but the trick is that the money must go directly from your IRA to the charitable organization. Your financial professional should be able to help advise you on this, or just give me a call. 

Although I am not an accountant or a CPA, my job is to make my clients’ money worth as much as possible while making effective use of laws and policies. The TCJA rules are helping many breathe a little easier, but don't forget about the organizations who do so much in our communities.  Remember, please, to remain generous.

Tax issues can be complex. Consult your tax professional before making a decision.

Barbara Runnels Coats, FICF, is a Modern Woodmen of America Financial Representative. You may reach Barbara here.

Adapted from original piece published in March 14, 2018 edition of Starkville Daily News. Reprinted with permission.