Editor’s note: This is the second of a two-part column on an alternative outlook on charitable giving under the new tax law. The first part ran Saturday, Jan. 27.
Let’s now turn to several provisions of the tax bill that are very positive for charitable giving.
First, the law keeps intact the ability to make Qualified Charitable Distributions (QCDs) directly from your IRA up to $100,000 each year. If you are 70 ½ or older and have Required Minimum Distributions (RMDs) that you must take from your IRA, making a Qualified Charitable Distribution (QCD) from your IRA to your favorite charity is a tax wise way to make a gift.
Distributions of up to $100,000 may be made each year and the amount will count toward your RMD but will not be recognized as income on your tax return. The distribution must come directly from your IRA custodian to the charity. We have a number of people who add to their scholarship or designated funds at the Community Foundation using this tool. Unfortunately, it appears that the new tax law still does not allow QCDs to Donor Advised Funds; however, there seems to be some debate on this point, which I will be following closely.
Secondly, taxpayers who itemize may now deduct up to 60 percent of their adjusted gross income each year, up from 50. And if they cannot deduct the full amount in the year of the gift, the balance can still be carried forward for 5 years. The deduction on appreciated assets (e.g. stocks) was maintained at 30 percent.
And there is even more good news for those who do itemize their charitable deductions. The Pease limitations that reduced the itemized deductions of higher income earners have been repealed. So those higher income charitable givers are not taking a haircut on their deductions like under previous tax law.
We do anticipate that some of our donors who have a Donor Advised Fund at the Community Foundation may use their fund to bunch their gifts. They might put a larger amount into their fund in one year so they can itemize their charitable gift and then makes grants out of their fund to their favorite charities over several years. So, in other words they may bunch their charitable giving into one year to receive a more favorable tax benefit.
The stock market at record highs is also positive for charitable giving. A donation of appreciated securities continues to be one of the most tax advantaged ways to give. By transferring the securities to a charity, you avoid the capital gain and also get the charitable deduction for the contribution. Stocks in your portfolio with the largest capital gain are the best to donate.
I do have to admit my crystal ball is not always right. I predicted in an earlier column that the estate tax would be repealed and it was not. However, the estate tax for a married couple now is not a factor for estates less than $22.36 million, up from $10.98 million. So, even fewer households will be impacted by the estate tax.
I am optimistic about charitable giving in 2018 under the new tax law based on the reasons stated in this column, mainly based on my pretty well informed gut. The Giving USA study on charitable giving in 2018 will be published in July of 2019, so I guess I will have to wait until then find out if my gut and logic are correct. Only time will tell.
– Phil Hanson is president and CEO of the Truman Heartland Community Foundation, based in Independence.