Despite what you may be hearing, the new tax law does hold some good news for people interested in making gifts to Franklin & Marshall College and other charities. Most importantly, Congress left intact the income tax charitable deduction. Itemizers will still be able to save taxes by deducting their gifts on their income tax returns. For those who will be taking the now-larger standard deduction instead, there are still tax-smart ways to give.
Increased Incentives for Itemizers
Under prior law, gifts of cash could eliminate tax on up to 50 percent of your adjusted gross income each year. The new tax law increases that limit to 60 percent, and any amounts not deductible in a given year can be used to reduce your income taxes for up to five additional years.
What About Those Who Don’t Itemize?
While the income tax charitable deduction remains intact, it only benefits those who itemize. Itemizing only makes sense for those taxpayers who have itemized deductions (including charitable deductions) that exceed the applicable standard deduction. That will be the case for fewer individuals under the new tax law, which reduces what can be itemized at the same time as increasing the standard deduction. There are some giving strategies, however, that still afford tax benefits even for those who will no longer be itemizing.
- Make gifts of appreciated property, such as publicly traded securities, to F&M. The new tax law retained the existing capital gains tax rates at 15 and 20 percent, or as high as 23.8 percent if you are subject to the 3.8 percent Medicare surtax. If you use publicly traded securities (that you have owned for at least one year) to make a gift to F&M, you will avoid all capital gain on your investment even if you don’t itemize. See the "Gifts of Appreciated Property Are A Smart Way to Give" article in this newsletter for more information.
- Make gifts to F&M using the charitable IRA rollover. If you are 70 1/2 or older, you can use your required minimum distribution to make a gift to F&M and avoid paying the income taxes you would otherwise owe on that money. Any amount that you transfer directly from your IRA to F&M, up to $100,000, will not be taxed as income to you, regardless of whether or not you itemize.
- Vary the amount of your gifts so that you can itemize in some years. Consider planning your future gifts in such a way that you will itemize in some years and take the standard deduction in others. If you plan to make annual gifts to F&M and other charities, you may be able to deduct the bulk of those gifts from your income taxes if you “bunch” them into certain years. Plan to make bigger gifts in some years that will push your total deductions over the new standard deduction amount ($12,000 for singles, $24,000 for married couples filing jointly). By doing that, all gifts you make that year will be deductible from your taxable income. Balance those larger gifts with smaller gifts in the off years when you will take the standard deduction.
As with any change, you should contact your accountant or financial planner to understand how the new tax law will affect your individual tax situation. Our team is also here to help you explore your options for giving to F&M.