Taxes and Charity: Money-Saving Tips

The Tax Cuts and Jobs Act (TCJA), signed into law late last year, may have reduced your ability to deduct charitable contributions from your taxes. Donations given to charitable organizations by individuals or couples are deductible on schedule A of the IRS 1040 tax form as itemized deductions. You can deduct your contributions if your itemized deductions are greater than the standard deduction. The TCJA has both increased the standard deduction and reduced the types of expenses that qualify for deductions. This means that many taxpayers will be hard-pressed to find enough expenses to itemize in 2018 and later. But there are solutions to this problem.

Bunching Deductions Using a Donor Advised Fund

A Donor Advised Fund (DAF) is actually a charity itself. So when you contribute money to a DAF, you get a tax deduction. At any point in time, you tell the DAF to distribute your funds to your favorite charities, including the Trail Conference. You could do this monthly, quarterly, or annually. Contributing to a DAF allows you to bunch two or more years of deductions into a single year. You’ll be able to itemize one year and take the standard deduction the next year. Using this method, you may be able to take full tax advantage of all your charitable donations.

Qualified Charitable Distribution

For those over age 70 ½, the Qualified Charitable Distribution (QCD) is another option. Many people have significant savings in their Qualified Retirement Accounts, such as IRAs and 401(k)s. Once you reach 70 ½, the government obligates you to start taking Required Minimum Distributions (RMDs) from these accounts every year. You need to take these distributions and pay tax on them whether or not you need this income for your living expenses. The QCD is a special distribution you can make from your IRA directly to a 501(c)(3) charity tax-free instead of your RMD. This allows you to donate to charity and avoid paying income tax on the distribution. You get the tax equivalent of a full deduction on your contribution from the first dollar you donate. Everyone’s tax situation is different. While these options may work for you, discuss it with a tax advisor before taking any action.

David is president and founder of Cereus Financial Advisors, LLC in Franklin Lakes, N.J., which specializes in comprehensive financial planning and wealth management for executives, professionals, and small business owners. He has been a Trail Conference member and volunteer for over 30 years.