At Humboldt Area Foundation we are thankful to be able to help so many of our neighbors put their generosity into action through charitable contributions to a local nonprofit or cause, especially at this time of the year.
Every day we hear about worthwhile ways local residents are building a better community for us today and for future generations. Lance wants to give to a park in Eureka. Susan wants to give to the food bank. Tom and Amy want to add to their fund to give more after the New Year. Bob and Chris have property and want to learn if they can use it as part of a charitable gift.
In making these gifts we also can’t overlook what is owed to Uncle Sam and the IRS. First, it is important to understand that the changes to the tax laws enacted in 2017 did not eliminate the deductibility of charitable giving. What did change was the standard deduction, which increased to $12,000 for single filers and $24,000 for married filing jointly taxpayers. That’s almost twice the 2017 standard deduction amounts.
Combined with that is now a limitation on deducting state and local taxes of $10,000. A typical married couple who are going to itemize will need a combined $14,000 in mortgage interest, medical costs and charitable deductions in order to itemize. Because of this new limit on state and local taxes, many people who formerly got a tax deduction for charitable giving will no longer choose to itemize.
Nearly two-thirds of all U.S. households give to charity, yet only 30 percent of taxpayers itemize deductions, and this is estimated to decrease to 10 percent under the new law. Getting a tax deduction may not be your primary motivation for charitable giving, but it is still a factor and there are ways to maximize your gift under the new tax laws as part of good financial planning.
As Kathleen Pender in her Net Worth series for the San Francisco Chronicle and others point out, one of the most efficient and “no-brainer” tax breaks for those of us at least 70½ years old is to make a donation from your (not Roth) Individual Retirement Account or IRA, if you have one. Donating from an IRA can give you a tax benefit equal to — and in almost all cases better than — what you would have gotten had you taken the donation as an itemized deduction. In fact, you can donate a total of $100,000 per year to one or more charities this way.
Making non-cash gifts of real estate, appreciated stock or other assets is a very tax efficient way to donate to a cause. By donating the asset, you can deduct the fair market value of the asset while not paying any tax on the appreciation of the asset. Using estate planning techniques such as a charitable remainder trust offers tax deductions as well income for life (a portion of which is tax free).“Bunching” your gifts into a single year’s contributions that provides grants over two or three years is also a way to continue support to your favorite cause while getting the maximum allowed tax savings.
Another popular technique is to set up a donor advised fund, which functions much like a charitable giving savings account. A donor can pre-fund several years’ worth of giving and receive a tax deduction this year while supporting your favorite causes over multiple years. Under the new tax law, donors are now able to receive a deduction of up to 60 percent of their adjusted gross income, up from the previous limit of 50 percent.
Do not forget that for your giving to qualify for this tax year, gifts must be postmarked (not just mailed) by Dec. 31. Online gifts can be made up until midnight.
These few examples should make clear that the new tax laws should not hinder your giving spirit. At Humboldt Area Foundation, we are here to help you, your family or business get the most from your giving. Please contact us if we can assist with your year-end gifts. Thank you for your generosity in supporting the causes close to you.
Patrick Cleary is executive director of the Humboldt Area Foundation. Luis Chabolla is the foundation’s director of donor engagement.