A rising stock market, a strengthening economy and a change in the tax code propelled charitable donations by American individuals, bequests, foundations and corporations to just over $410 billion in 2017, according to Giving USA 2018: The Annual Report on Philanthropy for the Year 2017. It was the first time that giving exceeded $400 billion in a single year.
Some non-profits are nervous that, because the new tax law nearly doubled the standard deduction, approximately 85 to 90 percent of Americans will not be entitled to deduct their contributions and therefore, donations may edge lower this year. But many give for altruistic reasons, not just for tax write-offs, which is why I am hopeful that the giving trends continue.
Navigating the New Tax Law
One benefit of the change in the tax law, as it pertains to charitable donations, is the opportunity to review how you want to incorporate your donations into your overall financial plan.
For example, it may be smart to “bunch” future years’ charitable contributions in order to qualify for deductions. Additionally, you may benefit from making a gift of appreciated securities from a taxable investment account, which allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains.
If you are planning to send a check, your payments must be postmarked by midnight December 31st – just writing “December 31st” on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are a little late in the process, you may want to go that route.
Consider a QCD
For those who are 70 ½ and older, and need to withdraw money from an Individual Retirement Account (IRA), consider a Qualified Charitable Distribution (QCD), which allows you to direct some or all of your Required Minimum Distribution (RMD) to a public charity (not to a private foundation, nor to a charitable supporting organization or a donor-advised fund).
You don’t get to count a QCD toward an itemized charitable deduction, but you avoid being taxed on the money. As a result, using a QCD may be a smart way to give, because it can minimize your Adjusted Gross Income (AGI) and a number of benefits like Medicare premiums and taxation of Social Security key off AGI. You can transfer up to $100,000 a year from your IRA and you can give away more money than your actual RMD amount.
Incorporating charitable donations into you financial plan and maneuvering a QCD can be tricky, which is why working with a CERTIFIED FINANCIAL PLANNER™ professional can be crucial. An advisor can not only make sure your charitable giving makes sense, he or she can also make sure you make the most of your available funds and keep meticulous records.