Charitable Giving under the New Tax Reform

Our clients are some of the most charitable people we know! With the new tax reform, we have heard many client questions on the ongoing ability to take a tax deduction for their altruism. The Tax Cuts and Jobs Act (TCJA) changed some of the requirements that allow you to take an income tax charitable deduction going forward in 2018, but by and large, these deductions remain in place and can be a great opportunity to reduce your effective tax rate.

The first question to ask on whether you will be able to deduct a charitable gift has to do with income limits. The TCJA increased the standard deduction considerably and limited or eliminated many itemized deductions. As a result, it may be to your benefit to take the standard deduction, even if you have itemized deductions in the past thus obviating any charitable deduction. It is important to keep track of your expenses and charitable donations so that we have the information needed to compare and choose the option with more tax benefit. If you do itemize deductions on your income tax return, a charitable deduction is allowed up to a certain percentage of your adjusted gross income. For cash gifts, this percentage limit has increased under the new law. For larger gifts it is always a good idea to schedule a strategy session with us, so we can ensure that you are getting the best bang for your buck on the tax side.

Donations to colleges and universities may continue to qualify for the charitable deduction. However, if you receive the right to purchase tickets or seating at an athletic event in exchange for the donation, it does not qualify. You may be able to take a deduction for amounts that are not tied to the right to purchase tickets. Again, good planning can guarantee that your gift is structured in a way that maximizes your deduction.

Lastly it is imperative that you keep good records for your donations. Each and every donation you make over $250, regardless if it is in cash or property, must be substantiated. Generally, a bank record or a written acknowledgement from the charity indicating its name, the date of the donation, and the amount of the donation, is sufficient. You must keep these records for each donation to ensure the charitable deduction is allowed. Donations of goods in excess of $5,000 will require more documentation as proof including an appraisal. Again, good planning is key here and those additional requirements of substantiation should not deter you from being generous. Just make sure you maintain the required proof.