Year-End Tax Planning: Maximizing the Tax Benefits of Charitable Contributions Under the TCJA

Many charities feared that the 2017 Tax Cuts and Jobs Act (TCJA) would have an adverse impact on charitable giving during 2018 and after. The significant increase to the standard deduction available to most individuals means that more taxpayers do not itemize their deductions, including charitable contributions. In effect, “losing” the charitable tax deduction and benefits arguably removes some of the (tax) incentive to contribute for lower and middle income taxpayers.

Many taxpayers can continue to realize the tax benefits from their charitable contributions in a couple of ways. The first, for those taxpayers who are aged 70 ½ and older, and who must take required minimum distributions (RMD) from IRA accounts, is available by directing some or all of the RMD to a charity, which avoids having to realize taxable income on the RMD (and having to treat the contribution as an itemized deduction), thus preserving a tax benefit to the donor.

A second way to realize the benefit is to “bunch” charitable contributions and other itemized deductions (such as property taxes and state and local income taxes) into a particular tax year (e.g., every other year), enabling the taxpayer to itemize and realize tax benefits in that year, while claiming the standard deduction in the “off years.”

For more information, please contact Tom Hammerschmidt in the Firm’s Ann Arbor office at (734) 623-1602 or any of the Firm’s tax specialists located in our Dickinson Wright U.S. offices.