Tax Reform for Individuals: Charitable Contribution Deduction Changes

If you are charitably inclined and typically donate to your favorite not-for-profit organizations each year, you may be wondering how tax reform will affect your charitable giving. If you itemize your charitable donations, it’s important to understand how the new rules on charitable contributions will affect you. Below we cover what you need to know about your charitable contributions going forward.

General Deductions

More deductions will be allowed since the maximum allowable deduction for cash contributions has increased from 50% of Adjusted Gross Income (AGI) to 60%. Noncash contributions of long-term capital gain property will remain limited to 30% of AGI.

“80/20” Rule

College sports fans won’t be cheering for one new limitation. The 80% deduction for contributions made to a university for athletic seating rights is repealed. Under prior law, donors received a tax break for donations that granted them premium seating rights. Since this deduction is repealed, demand for high priced seating will likely decline due to donors losing this deduction. Watch to see if individual states decide to provide this deduction in the future.

Reporting Regulations

New tax law also states that contributors will have to prove their donation, even if the donee organization files the required return. Previously, there was an exception to the contemporaneously written acknowledgment requirement for contributions of $250 or more, if the donee organization reported the required information to the IRS. A contemporaneous written acknowledgment by the donee is now required as this exception has been repealed.

How to Continue Donating

While the changes are not too significant, the increased standard deduction may reduce the incentive of donating to charity in order to increase itemize deductions.

Qualified Charitable Distributions

There are a few ways to continue donating and receiving tax benefits: the first being a qualified charitable distribution. When a taxpayer turns 70 ½, it is mandatory that they take a required minimum distribution out of their IRA and retirement plan.  This money is taxable income, but it can also be gifted to any qualifying charity directly from an IRA.  If a distribution is directly donated, then it is not taxable income. Up to $100,000 per year may be directly transferred to an eligible charity.

Donor-Advised Funds

Donor-advised funds are a good option for continuing to give back.  A donor-advised fund allows taxpayers to contribute to the fund, which is invested and grows tax-free. At the donor’s discretion, the funds are gifted by the fund manager to the donor’s choice of charities. The taxpayer can then choose to itemize in the year that the donation has been made.

Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business. Contact an Anders advisor with questions on how the new tax law will affect you.