Charitable Donations After Tax Reform of 2018
As all of you well know, we are not income tax experts. Luckily it doesn’t take an income tax expert to reinforce why you should, now more than ever, plan to make your charitable contributions from your traditional IRA IF you are at least 70 1/2 years of age.
Why is that, you may ask?
Prior to 2018, we got a tax break for charitable deductions as long as we itemized our deductions on our federal tax returns. As part of tax reform in 2018, the standard deduction was doubled and the write-off for state and local taxes was capped – something you have likely experienced as you have filed your 2018 tax returns. What this change to the standard deduction means is that most of us will now take the standard deduction and lose the ability to write off those charitable deductions. Of course it’s not just the tax break which drives charitable giving, but we want to make sure that those of you who are subject to required minimum distributions from your IRAs, and not itemizing deductions, are aware of the tax benefit of donating to charities directly from your IRAs. For those of you who are 70 1/2 or are approaching 70 1/2, read on…
The rules are relatively straightforward:
You must be at least 70 1/2 and be taking required minimum distributions (RMDs) from your IRA. We are happy to help you figure out what the required amount for your distribution is.
You can donate directly to a charity, up to $100,000 per year. We will prepare the forms for you to sign – all we need is the dollar amount you wish to donate and the full address of the charity.
You are not allowed to write off the donation BUT you also do not pay income taxes on the donated amount.
Remember this applies to traditional IRAs only, not Roth IRAs.
Of course there are other ways to tax efficiently donate to charities, including bundling several years’ donations into a single year and then itemizing for that year, establishing a donor advised fund and donating appreciated stock. These options absolutely require a tax expert though, so call your favorite one to answer questions on these options.