Can I Still Deduct Charitable Contributions in 2018

The Trouble: The tax bills passed by the House and Senate would both nearly double the income revenue enhancement standard deduction for individuals (to $12,000) and couples (to $24,000) and would eliminate deductions for state income taxes. The touch of this: Most people will not exist able to catalog their deductions. Information technology's expected the per centum of those deducting charitable donations would fall precipitously from 26 percent to 8 percent. Here'southward a link to an analysis in New York mag. Here'south another link to an analysis by the Tax Policy Center.

Let's take a quick example to demonstrate how the revenue enhancement bills would touch a typical couple. A couple has income of $150,000. In 2017, the couple'due south standard deduction is $12,700. They paid land income taxes of $xi,000, property taxes of $5,000, and fabricated charitable contributions of $5,000. Their income and property taxes, over which they had no choice, full $16,000 and far exceed their standard deduction of $12,700. Thus, they got the do good of deducting their charitable contributions of $5,000. In other words, every dollar of charitable contribution saved them taxation on a dollar of income. They are in the 25% federal taxation bracket, then the $5,000 contribution saved them $one,250 in taxes.

In 2018, assuming their income and state and local taxes are the same, their state of affairs would be as follows: Their income for 2022 would be $150,000, their state income tax would exist $eleven,000, their belongings tax would be $5,000. If the tax bills become law, their state income tax would non be deductible and they would have a standard deduction amount of $24,000.

Thus, their total itemized deductions, other than charitable, would be just $5,000, their holding taxes. In other words, they could but deduct charitable contributions to the extent they exceed $19,000—far more than than the $five,000 they typically brand. So, they volition accept the standard deduction and volition get no tax benefit from making the charitable contribution. In fact, the first $xix,000 of charitable contributions would see admittedly no tax benefit.

The Solution: However, past planning ahead, they tin take the deduction in 2017, where it will still provide a tax benefit. The couple could establish a Donor Advised Fund in 2022 and make a contribution to it. Here's a link to more information from Allegiance, which has the state's largest donor advised fund.

With a Donor Advised Fund, the couple makes a contribution this twelvemonth, and they continue to suggest regarding the investment and distribution of the funds to clemency in hereafter years. So, allow'southward say the couple has a history of making a $v,000 contribution to their alma mater each year. They can direct the aforementioned $5,000 contribution to their alma mater from the fund.

Assuming the investment returns only barely cover the fund fees, they tin can proceed making the contributions for 6 years before the fund would exist exhausted. Meanwhile, they got the tax benefit of their $thirty,000 contribution up front, in 2017.

Again, if they contributed $5,000 each twelvemonth, they would take seen no tax benefit later 2022 (under the proposals). By making the contribution in 2017, they would exist able to make the contributions when they are still deductible. They could have made the contribution to their alma mater all in 2017. But, with the Donor Advised Fund, they tin decide in later years to whom they will give their charitable donation even so still become the deduction up front.

We don't know if the taxation bills will laissez passer, or what the last provisions might be. However, if yous make a contribution to a Donor Advised Fund, you lot'll be sure to get your deduction this yr. In my side by side weblog, I'll look deeper at the operation of the Donor Advised Fund.

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com

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Source: https://www.aaepa.com/2017/12/no-charitable-deduction-2018/

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