What to Know
Giving Tuesday, which raised $300 million last year, could be even bigger in 2018
Although the new tax laws sharply reduced the tax benefits of charitable giving, you can still make the most of your contributions
Doing good is its own reward. Reaping the tax benefits is a nice perk.
Charitable donations generally kick into high gear on "Giving Tuesday," a single day specifically focused on charity in the shopping-heavy week after Thanksgiving.
#GivingTuesday raised $300 million last year, according to GivingTuesday.org – although it remains to be seen whether this year will surpass that, in light of changes to the federal tax code under the Tax Cuts and Jobs Act passed last December.
The new tax laws, among other things, eliminate or sharply reduce the benefits of charitable giving for many would-be donors.
Even though the deduction for donations is unchanged, you still need to itemize to claim it, and that's a much higher bar with the nearly doubled standard deduction.
Under the new law, an individual will need total itemized deductions to exceed $12,000, the new standard deduction for individual taxpayers, up from $6,350. Married couples would need deductions exceeding $24,000, up from $12,700.
As a result, fewer people will itemize this year, which means many won't reap the tax benefits of their charitable contributions. That could put a damper on some people's charitable inclinations this holiday season.
"There are certain people who don't always care about the tax benefit; they're going to give anyway," said Bryan Havighurst, head of the wealth planning team at Fifth Third Private Bank. But there are also those that "will give more if there's a tax benefit," he added.
Still, even with the new tax legislation, 2018 has the potential to exceed last year's record levels of giving, according to Kim Laughton, president of Schwab Charitable.
"The charitable deduction was one of the few deductions that was not capped or eliminated like many other deductions," she said. "It's a relative bright spot for tax planning."
In fact, 49 percent of U.S. donors plan to donate more money to charity in 2018 than they did in 2017 and only 10 percent said they plan to give less this year, according to a separate report by online fundraising software company Classy, which polled 1,000 adults in November.
Of course, you don't have to reap the benefits to give back but if you do want to maximize the impact of your charitable contributions while complying with the new tax laws, the National Association of Enrolled Agents offers a few tax tips to help:
Bundle your donations. One way to surpass the new, higher standard deduction is to save money over time and donate every two or three years instead of every year.
For example, instead of giving $5,000 to charity annually, accelerate the gift by giving $10,000 every two years. This way, you may get your itemized deductions over the limit one year and take the standard deduction the next.
One way to accomplish this is with a donor-advised fund, which lets you make a charitable contribution and receive an immediate tax break for the full donation, and then recommend grants from the fund to your favorite charities over time.
Make a qualified charitable distribution from an IRA in lieu of taking a required minimum distribution. Retirees age 70½ or older might also consider transferring money from their IRA to a qualifying charity.
Such qualified charitable distributions can be a tax-efficient way of meeting your required minimum distribution — and you don't need to itemize your deductions to benefit.
Using a qualified charitable distribution lets you reduce your taxable income by the amount donated, up to 50 percent of your adjusted gross income, according to the National Association of Enrolled Agents.
Donate appreciated stock instead of cash. Another wise tax move would be to avoid the capital gains tax on investments by donating stocks or other appreciated assets, such as artwork and antiques, which have grown in value.
High-income earners in particular could consider a noncash donation specifically because of the tax advantages. Although after the market run-up earlier this year, even those who have small holdings could benefit by donating appreciated investments before the end of the year, Laughton said.
Cover the basics. Finally, check out the IRS guidelines before giving and make sure the organizations to which you donate are tax-exempt. The organization you're giving to should be able to provide information and documentation to confirm it's a registered 501(c)(3) or use the tax-exempt organization search tool available on the IRS website.
And don't forget to save any receipts for tax-filing time.
This story first appeared on CNBC.com. More from CNBC:
- What the new tax law means for your charitable giving
- Here's a tax break for your antiques and oddities
- Ramp up your tax savings in 2018 with this strategy