“Thoughts on Charities and the New Tax Law”
Two months ago Congress passed a bill greatly affecting income taxes and the President signed it into law. One month ago I attended a conference of Disciples of Christ clergy on stewardship where this new law was discussed. Though it is designed to make it easier for people to file their taxes, it’s the ease in filing your tax return that has charities (like Central) concerned. One major change in the law pertains to doubling the standard deduction from $12,000 to $24,000 for a joint return. This has the effect of encouraging more people not to itemize deductions. With the deductibility of state and local taxes capped at $5,000 a year, a couple would have to donate more than $19,000 to charities in a tax year to benefit from itemizing. While some donors may exceed this amount, most are likely far below. There is some concern among charities and churches that donations will decrease due to these changes.
I have to believe that most donors will continue to support their church or charity because they know the value of its mission. This is certainly how I perceive our donors at Central. You/we do not donate simply for the tax benefit. Still having faith that you will continue to support Central, I want to offer a few suggestions that I’ve learned about how you can achieve greater savings on your tax return.
1) If you are over 70 ½ and taking required minimum distributions (RMD) from your IRA or 401(k), you can instruct the investment broker that you wish to have the RMD sent directly to Central. In doing so you are not required to report the income on your tax return nor are you allowed to claim the charitable contribution, unless the deductibility exceeds the $24,000 threshold.
2) A second way of saving on your income taxes is by “bunching” your contributions. This is combining two years of contributions into the same tax year. Then in the following year you wouldn’t make any contributions. A number of Central’s members already do this. They give their normal donations throughout the year and then make a large donation in December prepaying the next year’s pledge. In following this concept bigger donors can easily surpass the $24,000 standard deduction and get a tax savings in the year when bunching.
3) A third way of saving taxes is by donating assets (i.e. stock) to the church that you have held for more than one year and which have gone up in value. In doing so you are able to claim the full value of the appreciated asset as an itemized deduction while avoiding having to report the transaction for capital gains tax purposes. Selling the asset and giving the cash to the church would require tax to be paid on the capital gain.
Of course, I am not a tax professional. You should definitely discuss theseconcepts with your tax advisor if you are interested in following any of these strategies. And if you choose, there is someone in our financial office here at the church who is likewise willing to discuss these with you in more detail. Central has been very blessed over the years of having many generous donors. And I don’t believe a change in the tax law will result in a reduction to our individual or collective generosity.
Blessings – Michael