In light of the Tax Cuts and Jobs Act that became effective Jan. 1, 2018, you may be looking at your finances and wondering how you will be impacted. One of the effects of this new legislation may be the tax benefits you receive for your 2018 charitable giving, particularly if you have itemized in the past.
This latest round of tax reform provides for lower tax rates, nearly doubles the standard deduction ($12,000 for individuals, $24,000 for couples), eliminates personal exemptions, and limits most itemized deductions. Although the legislation maintains the income tax charitable deduction, some taxpayers may find the standard deduction better than itemized charitable deductions moving forward.
So how does this affect your giving options beginning with the 2018 tax year? Here are some alternative strategies you may want to consider for 2018 and beyond:
• Make larger direct gifts to charity: Your total deductions may put you close to the threshold where itemizing your deductions offers greater tax benefits than taking the standard deduction. In this case, you might consider making a larger charitable gift so that you can enjoy the additional tax savings that itemizing would offer. In addition, cash is now deductible at 60 percent of your adjusted gross income, up from 50 percent last year.
• Make an IRA charitable rollover gift (if you are 70½ years or older): Regardless of whether you itemize your taxes, this gift helps fulfill your required minimum distribution and is not considered taxable income. Plus, you can give up to $100,000 per year!
• Consider establishing a Donor Advised Fund (DAF): A donor who uses this strategy gets one large deduction the year he/she contributes to the DAF and can disperse distributions to Lutheran Hour Ministries (LHM) and/or other charities over multiple years, maximizing your gifts and impact.
• Set up a Charitable Gift Annuity (CGA): The American Council on Gift Annuities announced on July 1, 2018 that they were raising charitable gift annuity rates for the first time since 2012. Charitable gift annuities, or CGAs, provide attractive lifetime annual income opportunities to donors for life in return for a donation of $10,000 or more. Donors may choose to begin payments immediately or to defer payments to a future date of their choice, the terms of which are set in place in a contract signed by both the donor and LHM. CGA payments vary by the age of the annuitant. The rates established by the American Council on Gift Annuities are designed to balance an attractive payment stream for the annuitant with an appropriate reminder gift for LHM.
• Donate appreciated stock: With the stock market having recently been at or near an all-time high, give your appreciated stock to a nonprofit like LHM and eliminate capital gains tax (which remains unchanged at 0, 15 and 20 percent).
• Name LHM as a beneficiary of retirement plan assets: These assets remain taxable when distributed to a loved one. Avoid the tax burden by donating to our cause and/or other nonprofit organizations.
• Include a gift for charity from your estate: The new tax law does not impose limits on estate tax charitable deductions. If you have sufficient assets and may be subject to estate tax, you might consider a gift to charity from your will, trust, or other estate planning documents. Such a gift will reduce your estate tax burden.
As always, please consult with your tax planner or financial advisor to determine the best charitable giving strategies for your personal situation. You can also find out more about these options by contacting LHM at lhm-gift@lhm.org or 1-877-333-1963.