Frequently, tax planning at the end of the year is a “hit or miss” proposition. However, as the massive new tax reform bill works its way to the president’s desk, expected to be gift-wrapped before Christmas Day, it’s hard for clients to go wrong by boosting year-end charitable donations.
If the bill becomes law, the Tax Cuts and Jobs Act (TCJA) of 2017 would create additional tax incentives for many taxpayers to contribute to charities before 2018, when most of the individual tax provisions would take effect. In any event, this is a proven way to cut your 2017 tax bill.
Currently, deductions for charitable contributions are claimed as itemized deductions on Schedule A, along with other deductions such as mortgage interest and state and local taxes (SALT). These itemized deductions, which are available when the total exceeds the standard deduction amount, can offset tax liability at rates as high as 39.6 percent under the tax structure for 2017. In addition, taxpayers generally are eligible to claim personal exemptions for themselves, a spouse and dependent children.
Under the new tax law, however, the standard deduction is effectively doubled to $12,000 for single filers and $24,000 for joint filers for 2018, while personal exemptions are completely eliminated. Also, tax rates are lowered, with the top rate dropping to 37 percent. Furthermore, many itemized deductions are repealed or modified. For instance, the deduction for SALT is limited to $10,000 annually, beginning in 2018. This could be detrimental to taxpayers in high-tax states even though they may benefit from the lower tax rates.
The TCJA doesn’t impose any new limits on the deduction for charitable donations as it does with SALT deductions. Therefore, charitable deductions generally will still be available in full to itemizers. However, due to the increase in the standard deduction and the cutbacks for other deductions, many taxpayers will no longer itemize deductions on their personal returns for 2018.
In other words, there is no tax incentive to give charitable gifts in 2018 for a sizeable segment of the population. They will get zero tax benefit for their generosity.
For those taxpayers who fall into this category — itemizing in 2017 and expecting to take the standard deduction in 2018 — it’s almost a no-brainer to make more charitable gifts before the end of the year. Not only can you add to your 2017 write-off for charitable gifts, the deduction is likely to offset income taxed at a higher rate than it would be in 2017. This is a win-win situation.
For taxpayers who expect to itemize deductions in 2018, bolstering your charitable deduction for 2017 isn’t likely to hurt, and probably will help your overall tax picture.
Don’t let your clients pass up this unique tax-saving opportunity. Inform them of the reasons for stepping up charitable-giving at the end of 2017 before it’s too late.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.