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Smart Tax Stategies

Summary of tax legislation related to charitable giving

The Tax Cuts and Jobs Act overhauled the tax system, and you may be left wondering how it could affect your giving. Outlined below are the main tax rules that impact charitable giving. We recommend you talk with a tax advisor for how this may affect your specific situation.

Maintained charitable deduction

Taxpayers who itemize their deductions will still be able to deduct donations to qualified charitable organizations.

Impact on charitable giving: No new impact on charitable contributions.

Increased limitation for cash charitable contributions

Through 2017, taxpayers could deduct the full amount of their cash contributions to charity as long as the deduction did not exceed 50% of their adjusted gross income (AGI). The new tax law increases the AGI limit on cash donations to 60%.

Rules limiting the amount of donated appreciated securities to 30% of AGI remain in place. Any contributions exceeding the AGI limits can be carried forward and applied over the next five years.

Impact on charitable giving: This could have a positive effect, allowing for a higher tax deduction as a percent of AGI.

Maintained carry forward rules

The carry forward rules pertain to the limit on charitable contributions that can be deducted in a single year, which the new tax law increased to 60% of AGI. The carry forward rules allow donors who contribute more than 60% of AGI in a single year to carry forward the excess part of the gift as a deduction for the next five years.

Impact on charitable giving: These rules allow donors to deduct charitable contributions that exceed contribution limits in a given year and provide opportunities for tax planning.

Increased the standard deduction

The standard deduction will increase to $12,000 for individuals and $24,000 for married couples filing jointly. This nearly doubles the standard deduction, which in 2017 was $6,350 for individuals and $12,700 for married couples filing jointly.

Impact on charitable giving: Overall, fewer people will itemize deductions on their tax return. High-income taxpayers will continue to do so, but more middle class families may not. Those who stop itemizing their deductions will not receive a specific tax benefit for charitable giving.

Reduced tax rates

The new tax law maintains seven tax brackets, but tweaks the income thresholds and lowers rates for most brackets.

Individual Filers

Old Tax Rate Old Income Bracket New Tax Rate New Income Bracket
10% Up to $9,325 10% Up to $9,525
15% $9,326—$37,950 12% $9,526—$38,700
25% $37,951—$91,900 22% $38,701—$82,500
28% $91,901—$191,650 24% $82,501—$157,500
33% $191,651—$416,700 32% $157,501—$200,000
35% $416,701—$418,400 35% $200,001—$500,000
39.6% $418,401+ 37% $500,001+

Married Couples Filing Jointly

Old Tax Rate Old Income Bracket New Tax Rate New Income Bracket
10% Up to $18,650 10% Up to $19,050
15% $18,651—$75,900 12% $19,051—$77,400
25% $75,901—$153,100 22% $77,401—$165,000
28% $153,101—$233,350 24% $165,001—$315,000
33% $233,351—$416,700 32% $315,001—$400,000
35% $416,701—$470,700 35% $400,001—$600,000
39.6% $470,701+ 37% $600,001+

Impact on charitable giving: For those taking a charitable tax deduction, this could mean a lower overall deduction for a similar contribution made in 2017. However, lower tax rates may also mean more discretionary income for charitable giving.

Limited state and local tax (SALT) deductions

Up until 2017, taxpayers were able to claim state and local income, sales, and property taxes as a deduction on their federal returns. The new tax law maintains this deduction, but caps it at $10,000.

Impact on charitable giving: The deduction of SALT in addition to charitable contributions allowed many people to exceed the standard deduction threshold. Limiting this deduction will make it more difficult to meet the newly increased thresholds.

Maintained the capital gains tax rate

The long-term capital gains rates remain in place in the new tax law. Capital gains are a form of income reported on the 1040 and factored into a taxpayer’s AGI. Taxpayers are subject to pay capital gains tax when selling appreciated securities held for over a year. The capital gains tax rate continues to be 20% and the Medicare surtax rate of 3.8% also remains, resulting in a 23.8% tax on capital gains.

Impact on charitable giving: When donors contribute long-term appreciated assets to charity, they minimize the capital gains tax, enabling them to give up to 23.8% more. They will also continue to be able to take a fair market value1 tax deduction.

Increased federal estate tax threshold

The law doubled the federal estate and gift tax threshold to $11M for individuals and $22M for married couples filing jointly. Until 2018, estates were subject to a tax when gross assets surpassed $5.49M for individuals and $10.98M for married couples filing jointly. The increased threshold means that fewer families will be subject to an estate tax.

Impact on charitable giving: Charitable donations remain exempt from estate tax, and many high-net worth individuals offset estate taxes with charitable contributions. These strategies will be less frequently used as fewer people are subject to estate taxes.

Repealed the Pease limitation

The new law removed the Pease limitation from the tax code. The Pease limitation was an overall reduction on itemized deductions for higher-income taxpayers. The rule reduced the value of a taxpayer’s itemized deductions by 3% of AGI over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s itemized deductions.

Impact on charitable giving: This has a positive impact on donors itemizing charitable contributions by allowing them to deduct more.

Cut corporate tax rate

The law lowered the corporate tax rate from 35% to 21% beginning in 2018.

Impact on charitable giving: For corporations taking a charitable tax deduction, this could mean a lower overall deduction for the same contribution. However, lower tax rates may also mean more discretionary income for charitable giving.

1For contributions of complex or non-publicly traded assets, generally fair market value is determined by a qualified appraiser in compliance with the IRS.

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