Following the Tax Cuts and Jobs Act (TCJA), many taxpayers are concerned about losing tax breaks for charitable contributions. Under the law, fewer households have a tax incentive to make charitable gifts. However, with planning, individuals and businesses can still benefit from donations.
The law increased the standard deduction to $12,000 for individual filers and $24,000 for married households filing jointly. This increase, plus the elimination of other deductions, means many households will no longer itemize, essentially losing the benefit of their charitable gifts.
However, you can still leverage contributions if you bundle several years of giving into one tax year and surpass the standard deduction limit. You’ll have higher giving one year and less the next. This strategy works well for households already close to the new standard deduction limit.
One approach is to donate at the beginning of January and the end of December. This comes closer to normalizing cash flow for both you and the charity. Just be sure the charity records the correct date on your receipt.
Donor advised funds
Another approach is to bundle your giving in a donor advised fund (DAF), available through brokerage firms and community foundations. With these funds, you get a tax benefit for the year you donate, but you have unlimited time to decide how you want to allocate those gifts. This strategy is scalable, meaning you can put several years of donations into one DAF.
Under the new law, you still get a tax break for donating shares of appreciated stock, mutual funds, and real estate. By making the gift directly, instead of selling the asset and then making a gift, you eliminate the tax consequences.
Businesses still can gain a tax benefit from charitable sponsorships or advertising through a charity. You could, for example, sponsor a golf outing or advertise in the charity’s newsletter. If certain conditions are met, such exchanges are deductible as business advertising. Your preferred charity benefits, and you retain the savings.
Be aware that you can’t inflate the value of a sponsorship or ad. For the promotion to be deductible as an advertising expense, there must be a reasonable expectation that you will receive a proportionate financial return. If there’s a rational reason your company would benefit from a sponsorship, you may be able to claim a deduction.
Talk to an advisor to build your giving strategy and ensure you are meeting any requirements under the new law.