The Tax Cuts and Jobs Act (TCJA) brought about sweeping changes for organizations of all types, including not-for-profits. Concerns have arisen that the TCJA would negatively impact charitable giving programs due to decreased tax benefits to donors. So what tax benefits are still available that development departments can discuss with donors?
To simplify the Form 1040 for all individuals, the TCJA eliminated certain itemized deductions and increased the standard deduction to $12,000 for individuals and $24,000 for married filing joint taxpayers. The TCJA eliminated deductions for investment advisory and other professional fees and capped the state and local deduction at $10,000. As a result, charitable contribution deductions are still an important way donors can reduce their tax burden.
However, the $24,000 standard deduction married taxpayers receive under the new law will make it difficult for donors with more modest incomes to earn any tax benefit from their charitable contributions, because their total itemized deductions will have to exceed $24,000 before they receive a benefit. There are still ways to overcome this reduction in tax benefit, however.
One way is to accelerate or “bunch” multiple years of charitable contributions into the current year, so the current year itemized deductions will exceed $24,000, and then take the standard deduction in a subsequent year, when no additional charitable contributions are made. Alternating years where donors itemize with years where they take the standard deduction could be an important tool for donors to realize a tax benefit from charitable contributions.
In addition to “bunching” contributions, donors over the age of 70 ½, who hold an IRA, have an added opportunity to reduce their taxable income by setting up a qualified charitable deduction (QCD) directly from their IRA account. Individuals are eligible to direct up to $100,000 a year from their IRA to a qualified charity and can utilize this contribution to satisfy their required minimum distribution (RMD). In the event the QCD exceeds the individual’s RMD, the amount in excess over the RMD will not be carried forward to satisfy a proceeding year’s RMD.
While the mission of an organization is still the primary driver for donations, there are still some tax benefits available for charitable donations.