Is Charitable Giving a Casualty of the New Tax Law?

When the Tax Cuts and Jobs Act was signed into law in late 2017, it ushered in a variety of sweeping changes to how Americans would file their income taxes a little over a year later. Among the biggest changes was a sizable increase in the standard deduction. Individuals now need to itemize deductions in excess of $12,000, and married couples $24,000 — double the previous standard deduction.

The result of this change is obvious: Less people are now itemizing their deductions, and instead electing to just take the standard deduction, largely because their itemizations won’t exceed the new, larger standard deductions.

Of course, one of the big deductions that taxpayers would normally include in their itemizations were charitable givings. But with fewer people itemizing, they’re likely no longer reaping the benefit from giving to charity. Now, it’s obvious that when most people give to charity, they’re not doing it because they want the tax write off — they’re doing it because they believe in the charitable organization — and that their money can help it with its mission. But it still begs the question: is charitable giving a casualty of the new tax law?

So, is charitable giving set to take a hit? It depends.

First, it’s important to note that Americans can still claim charitable givings as a tax deduction — and it’s not a deduction that is capped under the new tax law, as is the case for some of the other traditional deductions of the past. Additionally, it’s important to remember that this deduction isn’t going to apply to those who regularly exceed the $12,000 or $24,000 standard deductions, which are likely to be the wealthier American taxpayers. So, the Americans that can afford to give notable sums to charity will likely continue to do — and reap the tax benefits of doing so as well. In other words, while it’s good to give, it’s also a giving that benefits them.

On the flip side, other experts are more cautionary on the impact the new tax law will have on charitable contributions. Some see wealthy Americans continuing to give at the rate they are giving, but middle class Americans giving less or not giving at all any longer. Why? Because it doesn’t help them in the same way that it helps higher income individuals. That could be an alarming trend that could cause some big changes in the way charitable organizations operate and the amount of money they’re able to raise for their respective causes. In fact, many charitable organizations are reporting that fewer donations are coming in overall, even if the amount of money that’s being raised remains similar to that of years past.

But, there is a way to continue giving and enjoying the benefit of it without being super rich.

If you’re not in a position where the charitable deduction is going to help you on your taxes on a year-in, year-out basis and you want anything that you give to help you when it comes time to file, there’s one thing that you can do. Instead of giving an annual amount to charity, bank that money over two or even three years until the donation amounts to a sum where it can help you with your itemized deduction.

So, for instance, if you normally give $3,000 per year to charity, perhaps giving $6,000 every two years or $9,000 every three years instead of an annual amount will be enough to get you over the standard deduction hump where you can reap the benefits of such.

Most people likely give to charity because they believe in the cause and believe their money can help do good. But at the same time, it’s always nice to get some incentives come tax time for any charitable donations that you make. If the amount that you give doesn’t help you on an annual basis, there are some things you can do to still make it work for you. It just takes a little creativity to ensure charitable donations don’t become a casualty of the new tax law.

Regards,

Ethan Warrick
Editor
Wealth Authority

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