The Tax Cuts and Jobs Act: Charitable Strategies for 2018
The Tax Cuts and Jobs Act, signed into law by the president in December of 2017, affects the income tax of both businesses and individuals and the federal estate tax on the estates of certain high-net-worth individuals.
- The tax rates for corporations and certain pass-through businesses are significantly reduced.
- Income-tax rates are lower for most individuals.
- The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married couples filing jointly.
- The personal exemption is eliminated.
- Some deductions, such as those for state and local taxes and mortgage interest, are limited.
- The federal estate-tax exemption for 2018 increases to $11.2 million for individuals and $22.4 million for couples.
- The annual gift-tax exclusion increases from $14,000 to $15,000 in 2018.
Except for increasing the deduction ceiling on cash gifts from 50% to 60% of AGI, the effect on charitable giving is more indirect than direct. The deduction of charitable gifts by itemizers and the gift instruments have been preserved. The income-tax savings from charitable gifts will generally be somewhat smaller because of the lower tax rates and because a larger number of individuals will not itemize deductions and thus will not realize tax savings from their gifts.
Here are some charitable strategies for your donors to consider this year:
- Increase charitable gifts to benefit from itemizing deductions.
- If the total of your donor's itemized deductions is going to be close to the new higher standard deduction amount, they might consider giving a little more to charity in 2018 so that their income-tax charitable deduction helps them exceed the standard deduction amount and they can itemize and receive the tax benefits of doing so.
- Make gifts of appreciated securities.
- Your donor can still save capital-gain taxes by giving appreciated securities owned for more than a year, a key part of tax law that has not changed.
- Make retirement-plan gifts.
- A simple and smart way to make a charitable gift is through retirement-plan beneficiary designations. While loved ones are subject to paying income tax on retirement-plan gifts they receive, charities are not. Thus your donor can help loved ones save taxes by giving them other assets and making retirement-plan gifts to charity.
- Make an IRA rollover gift.
- Those over the age of 70½ who have not yet taken the required distribution from their IRA might ask their IRA administrator to make a direct tax-free transfer to charity. The ability to make such transfers was not affected by the new law.
- Make a gift that costs nothing now.
- A bequest in a will or trust continues to be a way to make a significant gift that costs nothing now. There are many ways to design a bequest in order to best meet family priorities and charitable objectives.